UPDATE 7: Vedanta Resources in Talks With Farallon for $1.25B Loan, Loan Closure Still in Limbo Over Guarantee; Company in Talks With Oaktree to Extend Repayment

UPDATE 7: 4:09 a.m. ET 3/29/2023:Vedanta Resources Ltd. or VRL, which has $1.8 billion debt repayments due in the April-June quarter, has held discussions with Farallon Capital Management LLC for a $1.25 billion loan at Zinc International as banks remain undecided on the quantum of loan they can provide, three sources said. However, though Farallon is willing to provide more than the $750 million that the banks are willing to lend, the loan closure would depend on guarantee from parent Vedanta Ltd. or VDL, VRL’s India listco, which hinges on approval from India’s Enforcement Directorate, the sources said.

The pricing on the loan from Farallon will be a little over 13% excluding a fee component, the second source said, adding that while Farallon’s offer would solve for the loan size, Farallon is likely to lend only if VDL provides a guarantee. The company is awaiting a no-objection certificate, or NOC, from the Enforcement Directorate, a government agency that investigates money laundering and violations of foreign exchange laws, as reported.

The discussions with Farallon come as VRL is struggling to raise funds to refinance its debt maturities, especially over the next three months. The upcoming debt repayment due in the April-June quarter include $400 million 8% bonds and a $250 million repayment due to Oaktree Capital Management, both due in April, $500 million 7.125% bonds due in May, repayment of $250 million to Standard Chartered Bank along with a $300 million intercompany loan, both due in June, the sources said. VRL also needs to repay $100 million to DBS Bank. Another $200 million will be due toward interest payments during the quarter, as reported.

Impending Loan Maturities

Standard Chartered Bank is unlikely to roll over the $250 million, the sources said, adding that as majority of it has been sold down to other investors by the bank, approval of those investors would be required for a rollover, which seems difficult right now. VRL is expected to repay Standard Chartered in April, ahead of the $400 million 8% bonds that also matures in April, from the brand fee it receives during the month which is expected to be around $300 million, all three sources said. VRL receives brand fee from its subsidiaries for the use of Vedanta’s brand name as part of an agreement, as reported.

Additionally, VRL is also trying to extend the $250 million Oaktree repayment due in April until September, two of the sources said. The company can consider postponing the $300 million repayment for an inter-company loan from Cairn India Holdings Ltd. as well, all three sources said.

VRL will be receiving around $600 million as dividends from its Indian opco Hindustan Zinc Ltd., or HZL, through VDL, most of which will go toward the repayment of $400 million 8% bonds due in April, the sources said. The company still needs a refinance plan for the bonds due in May, the sources said. VRL may consider dipping again into HZL for another round of dividend in the next quarter, also the first quarter of the fiscal year 2024, as reported.

Farallon and Standard Chartered bank did not respond to calls and messages seeking comment. An Oaktree spokesman declined to comment.

–Malvika Joshi

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UPDATE 6: Banks Consider Reducing Loan Size at Zinc International Amid ED, Reserve Bank of India Approval Delay

UPDATE 6: 5:29 a.m. ET 3/27/2023:Vedanta Resources Ltd. or VRL could raise around $750 million or lower at Zinc International Ltd. instead of the planned $1 billion, as at least one of the global banks involved in the deal is considering cutting back on the loan size at Zinc International, and lend to VRL’s Indian listco Vedanta Ltd. or VDL instead, three sources said.

VDL is awaiting a no-objection certificate from the enforcement directorate or ED, a government agency dealing with the investigation of offense of money laundering and violations of foreign exchange laws, in order to provide a guarantee for the loan under discussion at Zinc International, which has led to the banks re-evaluating the loan size, the first two sources said. ED approval has been necessitated due to a “past case” and the delay is due to the interpretation of regulations against this case, the two sources said. The Reserve Bank of India’s approval for providing the guarantee is pending as well, as reported.

Due to the delays in regulatory approval and with the banks still considering the fund raise to be a “work-in-progress”, completion of the loan is not expected before mid-April, two of the sources said.

VRL has been in discussions with Barclays Bank, Deutsche Bank, JPMorgan and Standard Chartered Bank to raise $1 billion at Zinc International to refinance its upcoming debt maturities, as reported.

Barclays and JPMorgan have held separate discussions with the company for directly lending INR 10 billion ($121.5 million) loan each at VDL at a price of around 12%, two of the sources said, adding that the INR debt raised at VDL could be upstreamed as dividend to VRL to the extent of retained earnings, the sources said.

VRL has debt maturities totaling around $1.8 billion during the April-June quarter including $400 million 8% April 2023 and $500 million 7.125% bonds due May 2023, as reported. The company has also held discussions with state-owned banks to raise money at the holdco to supplement the fund raise at Zinc International but has not been able to close the loans, all three sources said.

In case the loan transactions under discussion do not close, the company may have to consider another round of dividends from its Indian opcos, the second and third source said.

Last week Hindustan Zinc Ltd, a subsidiary of VDL, declared a INR 109.858 billion ($1.33 billion) dividend, of which around $600 million can be upstreamed to VRL through VDL post the cash leakage to public shareholders, as reported. VDL’s board will also meet tomorrow to declare the fifth interim dividend for the financial year ending March 31, 2023, as reported. VDL holds 64.92% stake in HZL and VRL holds 69.68% stake in VDL, according to the data on BSE Ltd.

Even as VRL tries to put together funds required to refinance its debt, the risk of credit rating downgrade remains, as reported. S&P Global Ratings is awaiting a definite plan from VRL on how it will refinance its $1 billion 13.875% bonds due January 2024. The rating agency requires the company to provide visibility on the refinancing of the bonds six to nine months in advance, as reported.

Vedanta did not respond to multiple emails and calls. Barclays, Deutsche Bank and JPMorgan spokespersons declined to comment. A Standard Chartered spokesperson did not respond to requests seeking a comment.

–Malvika Joshi

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UPDATE 5: Vedanta to Rely on HZL Dividend to Service Debt in April-June Quarter, Awaits RBI Nod to Finalize Guarantee for Loan at Zinc International, Continues to Negotiate Benign Loan Terms

UPDATE 5: 9:45 a.m. ET 3/21/2023: Editors’ Note: The following story was published in the evening on March 21 and has been republished during regular business hours to reach a wider audience.

Vedanta Resources Ltd, or VRL, will be relying on the $1.33 billion dividend from its Indian opco Hindustan Zinc Ltd., or HZL, to partly service its $1.8 billion debt maturities in the April-June quarter as the terms of a proposed loan at Zinc International to refinance the debt require Indian central bank approval, which is yet to come through, three sources told Reorg. The company has also been trying to negotiate a lower price for the loan, which is currently pegged at around 13% and is delaying closing, as reported.

Zinc International, a wholly owned offshore subsidiary of VRL’s Indian listco Vedanta Ltd. or VDL, requires Reserve Bank of India approval to provide a guarantee by VDL for the $1 billion loan under discussion, the sources said. Several investors have been anticipating the loan closure at Zinc International by the end of March, which may not be easy given the pending regulatory clearance, the sources said.

While some of the sources said that the delay in getting the approval is procedural in nature, others said that the delay is due to interpretation of the regulations pertaining to overseas investment. However, getting the approval is unlikely to be a problem in loan closure, all three sources agreed. Being an offshore subsidiary of VDL, a guarantee by VDL for Zinc International would require a go-ahead from the central bank.

VRL has held discussions and received a term sheet from three banks - Barclays, Deutsche Bank and JPMorgan - for the loan, which is likely to have a maturity between 48 and 60 months, as reported. Standard Chartered Bank has also joined the syndicate, as reported. The proposed loan will have a guarantee from VDL and is likely to be secured by Zinc International assets as well, the sources said.

HZL declared a $1.33 billion fourth interim dividend for the fiscal year ending March 31, 2023, as reported. The dividend is expected to take care of debt maturities including the $400 million 8% bonds due in April 2023, the sources said. The dividend declared will be upstreamed to VRL through VDL and will suffer cash leakages to public shareholders. VDL holds 64.92% stake in HZL and VRL holds 69.68% stake in VDL, according to the data on BSE Ltd. VRL is likely to receive around $600 million, according to the second and third source.

Bonds of VRL were indicated lower in an overnight trade due to a lack of progress in the refinancing but had recovered about a point in the morning today, according to two separate buyside sources. VRL’s $400 million 8% senior unsecured bonds due April 2023 were indicated at 92.5/94.5, while its $500 million 7.125% senior unsecured bonds due May 2023 were indicated at 91/93, said the buyside sources. The $1 billion 13.875% bonds due January 2024 were indicated at 82/84, the $1 billion 6.125% bonds due August 2024 were indicated at 62.5/64.5, and the $600 million 9.25% notes due 2026 were indicated at 63.5/65.5, according to the sources.

VRL’s debt maturities between April to June include a $300 million intercompany loan, $250 million due on the Oaktree facility in June, according to two of the first three sources. The $300 million intercompany loan can be repaid and upstreamed back in the form of a dividend, the sources added.

Another $250 million repayment to Standard Chartered Bank is due in June while $100 million needs to be repaid to DBS Bank during the April-June quarter, as reported. Additionally, there is a $200 million interest payment and a $50 million amortization payment due in the June quarter, sources said. Apart from loan obligations, VRL also needs to repay or refinance its $400 million 8% bonds due in April 2023 and $500m 7.125% bonds due in May 2023.

VRL has been trying to negotiate tighter pricing with the banks as the loan will have a guarantee from VDL as well as additional collateral, the sources said. Accepting a higher pricing with the collateral cushion being provided may lead to high cost of debt refinancing at its stepdown subsidiary Twinstar Holdings Ltd., as reported.

Meanwhile, ratings agency S&P Global Ratings is awaiting a definite plan from VRL on how it will refinance its $1 billion 13.875% bonds due January 2024. The rating agency requires the company to provide visibility on the refinancing of the bonds six to nine months in advance, sources said, adding that there is a likelihood of a downgrade in case the company is not able to show enough progress on the Zinc International loan.

Vedanta did not respond to email and call requesting a comment. An S&P spokesperson declined to comment on the development. RBI spokesperson did not respond to email seeking a comment.

– Malvika Joshi, Dipika Lalwani

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UPDATE 4: International Banks Quote 13%-14% For $1B Zinc International Loan; Vedanta Resources Looks to Tap Indian Banks to Reduce Pricing Through Expanded Syndicate

UPDATE 4: 12:31 a.m. ET 3/13/2023: London headquartered metals-to-mining company Vedanta Resources Ltd., or VRL, has received term sheets from international banks for the $1 billion loan it plans to raise at Zinc International Ltd., a wholly owned subsidiary of VRL’s Indian listco Vedanta Ltd., or VDL, three sources close to the matter said. However, VRL is still negotiating terms as the pricing offered by international banks, including Barclays Bank, Deutsche Bank, JPMorgan and Standard Chartered Bank, is in the 13%-14% area, the sources said.

VRL is now reaching out to Indian banks to expand the syndicate, as it looks to reduce pricing by 300bps to 400bps, the sources said.

If closed, the loan is likely to have a 48-60 month maturity, the sources said. It will have a guarantee from VDL, as reported.

VRL is not keen on raising the loan at the pricing currently offered as it could translate to higher refinancing costs for its USD bonds and other debt at its step-down subsidiary Twinstar Holdings Ltd. in the future, the sources said.

The company announced on Feb. 28 that it was looking to raise up to $1.75 billion to meet its refinancing obligations, comprising an around $1 billion loan from a syndicate of banks and around $750 million in bilateral facilities with relationship banks, the announcement states. Among obligations the company is looking to refinance is a $750 million loan from Oaktree Capital Management, which is keen to exit its exposure to VRL, the first two sources and a fourth source said.

VRL had initiated discussions to raise money at Zinc International in February, as it had yet to reach close on any of various loan transactions it was working on, including a $1.5 billion loan from private credit funds, as reported. Credit funds have been seeking a minimum 17% for the $1.5 billion private debt, as reported. The pricing being demanded by the funds is around 17%, as reported. VRL faces $1.8 billion debt maturities between April and June, including $400 million 8% bonds due April 2023 and $500 million 7.125% bonds due May 2024, as reported.

The company has also held discussions with international banks for a loan at Twinstar to repay some of its loans due next quarter, including a $250 million repayment to Standard Chartered Bank and $100 million repayment to DBS Bank, as also reported.

Finalizing the loan is crucial at this juncture for VRL as rating agency S&P Global Ratings may re-evaluate the company’s rating by the third week of March if it is not able to provide a concrete refinancing plan along with the term sheets, the first two sources said.

Last week, Moody’s Investors Service downgraded VRL’s corporate family rating to Caa1 from B3. Concurrently, Moody's also downgraded the ratings to Caa2 from Caa1 on the senior unsecured bonds issued by VRL and those issued by VRL's wholly owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by VRL. VRL had ended its engagement with Moody’s in November 2022 after the rating agency downgraded VRL’s corporate family rating and its bonds citing the company’s inability to provide a long-term debt refinancing plan, as reported.

Barclays, Deutsche Bank, JPMorgan and Standard Chartered Bank spokespersons declined to comment. Vedanta and Oaktree spokespersons did not respond to emails and calls requesting comment. An S&P spokesperson declined to comment.

–Malvika Joshi, Dipika Lalwani

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UPDATE 3: Vedanta Resources to Tie Up $1B Fresh Loan From Syndicate Banks 

UPDATE 3: 10:12 a.m. ET 2/28/2023: Editor's Note: The following story was published in the evening on Feb. 28, and has been republished during regular business hours to reach a wider audience. 

Vedanta Resources Ltd., or VRL, announced to the Singapore exchange today, Feb. 28, that it is in an advanced stage to tie up a $1 billion fresh loan from a syndicate of banks.

Reorg on Feb. 27 reported that VRL was exploring the option to raise up to $1 billion in funds at Zinc International Ltd., a wholly owned offshore subsidiary of Vedanta Ltd. or VDL, VRL’s Indian listco.

The company is also close to finalizing about $750 million in bilateral facilities with various relationship banks, the announcement states. The remaining liquidity requirements to meet its upcoming maturities in the fiscal first quarter ending June 30, can be addressed through internal accruals, according to the announcement.

VRL has pre-paid all of its maturities due until March 2023 and is “confident” of meeting its upcoming maturities in the quarter ending June 30, the announcement states.

VDL does not have any pledge except about 6.8% of Hindustan Zinc Ltd.(a subsidiary of VDL) shares, according to the announcement.

During the fiscal year ended March 31, 2022, Vedanta Ltd. delivered an EBITDA of around $6.1 billion and free cash flow (pre-capex) of around $3.6 billion, the announcement states.

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UPDATE 2: Vedanta Resources Mulls Two-Step Transaction to Upstream Proposed $1B Loan at Zinc International

UPDATE 2: 9:18 a.m. ET 2/28/2023: Editor's Note: The following story was published in the evening on Feb. 28, and has been republished during regular business hours to reach a wider audience.

Vedanta Resources Ltd., or VRL, which is in discussions with international banks to raise up to $1 billion loan at Zinc International Ltd., plans to upstream the loan to itself as a dividend through a two-step transaction, said two sources close and one source familiar with the matter.

Zinc International is a wholly-owned offshore subsidiary of VRL’s Indian listco Vedanta Ltd., or VDL. The loan from banks at Zinc International would first go towards repayment of compulsorily convertible preference shares (CCPS) issued by Zinc International to VDL in the past, the sources said. Thereafter, the cash received by VDL as repayment can be upstreamed as a special dividend to VRL in proportion with VRL’s 69.69% shareholding in VDL, the sources said.

A loan raised at VDL could not be upstreamed as a dividend directly, the sources said, adding that the already existing CCPS pending at Zinc International makes it a suitable entity to raise money as the repayment coming would be treated as cash on VDL’s book.

The discussions are still at a preliminary stage and the loan closure would depend on the banks’ willingness to lend since VRL also has other big debt maturities later in calendar year 2024, including its $1 billion 13.875% bonds due in January 2024, the first two sources said. Between April and June VRL has debt repayment obligations totalling around $1.8 billion, as reported.

Reorg first reported that VRL is in discussions with Barclays, Deutsche Bank and JPMorgan, and plans to raise the loan at Zinc International to meet its upcoming debt refinancing needs. The loan is likely to be guaranteed by VDL, as reported.

The discussions to raise debt at Zinc International, currently a debt free company, come at a time when VRL is trying to raise around $2 billion to meet its debt obligations, including a $750 million loan from Oaktree Capital Management at its three subsidiaries - Vedanta Holdings Mauritius II, Westglobe and Finsider, together known as the so-called Oaktree box - as reported. Although the company has held discussions with private funds to raise the debt, pricing being demanded by the funds is at least 17%, as reported.

VRL is also trying to raise $500 million at its stepdown subsidiary Twinstar Holdings Ltd. through brand fee securitization to meet its loan maturities next quarter, as also reported. The termsheets have been submitted by the banks and a decision on the loan is likely to be within a week, the first two sources said.

If the Zinc International loan closes, VRL can do away with the option of raising debt from private funds, the second and third source said, adding that the company could bridge any refinancing gap with dividends from Indian opcos including Hindustan Zinc Ltd. (HZL).

Vedanta spokesperson did not respond to email and calls requesting a comment.

-Malvika Joshi

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UPDATE 1: Vedanta Resources Attempting to Raise Funds at Zinc International to Meet Refinancing Needs as Oaktree Upsize Yet to Close; USD Bonds Down 3-5 Points Today, Feb. 27

UPDATE 1: 12:32 a.m. ET 2/27/2023: Vedanta Resources Ltd., or VRL, is exploring the option to raise between $750 million and $1 billion funds at Zinc International Ltd., a wholly owned offshore subsidiary of Vedanta Ltd. or VDL, VRL’s Indian listco, three sources close to the development said. Funds could eventually be upstreamed as a dividend to VRL, the sources said.

The move to raise funds at Zinc International comes as VRL is trying to meet its upcoming debt maturities of around $1.8 billion in the April-June quarter, and has yet to close any of the various loan transactions to meet its repayment needs which are under discussion, the sources said.

The debt raised at Zinc International would involve a guarantee from VDL, the second and third source said. Vedanta’s senior management also met the company’s relationship banks including Barclays, Deutsche Bank and JPMorgan last week to discuss the transaction, the third source said.

The discussions are at a preliminary stage, the first two sources said, adding that closing the transaction would depend on whether the banks are willing to take on additional exposure amid the refinancing risk overhang.

VRL’s USD bonds were indicated 3-5 points down across the curve today, Feb. 27, the sources said.

Barclays declined to comment. Vedanta Resources, Deutsche Bank and JPMorgan did not immediately respond to calls and emails requesting comment.

–Malvika Joshi, Dipika Lalwani

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Original Story 4:38 a.m. UTC on Feb. 23, 2023

Vedanta Resources Sounds International Banks to Raise $500M at Twinstar, as Credit Funds Seek Minimum 17% Pricing for $1.5B Private Debt 

Vedanta Resources Ltd. (VRL) has reached out to some of its international bank lenders to raise $500 million debt at its subsidiary Twinstar Holdings Ltd. through securitization of brand fee, to deal with upcoming loan maturities in the April-June quarter, two sources close said. VRL has reached out to Barclays Bank, Deutsche Bank, JPMorgan and Standard Chartered Bank to raise money at Twinstar, the sources said.

The development comes with VRL still trying to close loan deals with special situation funds and state-owned banks at its three other subsidiaries - Vedanta Holdings Mauritius II, Westglobe and Finsider - to raise $2 billion to refinance a $750 million loan from Oaktree Capital Management, and other upcoming debt maturities, as reported.

The London headquartered metals-to-mining company has also initiated discussions with the banks to request rollovers of loans due next quarter at its stepdown subsidiary Twinstar Holdings Ltd., the sources said, adding that the lenders are not comfortable allowing rollovers right now, given the size of the tightly spaced debt maturities: $1.8 billion is due in the April-June quarter, $600 million in the October-December quarter, and $1 billion in the January-March quarter.

VRL needs to repay $250 million to Standard Chartered Bank and $100 million to DBS Bank in the next quarter ending June 30, the sources said. During the April-June June quarter, the company needs to repay and/or refinance around $1.8 billion in debt, the sources said.

The combined overall debt ceiling at subsidiaries Twinstar Holdings and Welter Trading is around $3.1 billion, and available headroom would allow Vedanta to raise close to $250 million at the two subsidiaries, the sources said. Another $250 million which the company is trying to raise at VRL will go towards repayment of upcoming loan maturities, without breaching the debt ceiling, the sources said.

Apart from loans due for repayment to StanChart and DBS next quarter, the company has to repay its $400 million 8% bonds due April 2023 and $500 million 7.125% bonds due May 2023, as well as a $450 million inter-company loan from Cairn India Holdings Ltd., the sources said. It will also have to repay $250 million due on the Oaktree facility next quarter if the planned fundraising from special situations funds does not go through, the sources said.

Although $1.5 billion will be sufficient to meet the near-term debt maturities including the refinancing of its USD bonds totalling $900 million due in April and May, VRL is attempting to raise additional money to meet debt obligations post June as well, the sources said.

Meanwhile, the company continues to negotiate with special situations funds to raise $1.5 billion at Vedanta Holdings Mauritius II, Westglobe and Finsider (together referred to as the Oaktree box) to refinance a $750 million loan from Oaktree at these subsidiaries, the sources said, adding that the investors are unwilling to close the transaction at pricing of under 17% at the moment. Reorg had first reported that VRL is in talks with as many as five private funds to raise around $1.5 billion through a three-year term loan to take out the Oaktree facility and had been negotiating pricing of around 14%-15%. Reorg previously reported that Cantor Fitzgerald, a US based financial services firm, has been helping VRL to raise the money from the funds.

VRL had been trying to securitize the brand fee at the Oaktree box as well, the sources said , adding that it is now attempting to do that at Twinstar to raise funds. Without the brand fee securitization, the loan being raised from special situation funds is expected to lower at around $1.3 billion, the sources said.

During the earnings call of VRL on Dec. 15, the management said that the brand fee payout during the fiscal first quarter of 2024 ending on June 30 is expected to be around $300 million, as reported.

VRL had also been trying to negotiate a make-whole period shorter than 12 months with the funds, seeking more benign loan terms on the back of Hindustan Zinc Ltd.’s (HZL) proposed $2.981 billion acquisition of THL Zinc Ltd.Mauritius from VRL’s Indian listco, Vedanta Ltd. (VDL). However, the deal is expected to be on pause for some time, following stated opposition from the government - India’s Ministry of Mines, in a Feb. 20 announcement, said its nominees on the HZL board had dissented from the proposed deal and the Government of India will oppose any proposed resolutions in furtherance of the agenda. In its response, HZL noted the proposed deal is subject to shareholder approval, but that a shareholder meeting has not yet been called, as reported. The deal, which the sources said is unlikely to close within this quarter, would allow VDL to upstream the cash from the deal as a special dividend to VRL in proportion to VRL’s 69.69% shareholding in VDL, as reported.

While the company has also been trying to raise between $300 million to $500 million from state-owned banks since October within the Oaktree box, the progress on loan closures has been slow, as previously reported. S&P Global Ratings on a call on Feb. 8 said it will re-evaluate VRL’s rating profile in case the $2 billion fund raise does not close, according to sources who attended the call. The rating agency would also require a refinancing plan at least 6-9 months ahead of the $1 billion 13.875% bonds maturity in January, the sources said.
 

Reorg had reported that VRL may dip into HZL’s cash to meet its debt maturities. HZL this week notified the BSE Ltd. that it will be conducting a shareholder voting process to get approval to transfer INR 103.83 billion cash from its general reserves to retained earnings, as reported. The transfer will allow utilization of the cash transferred, if needed, to declare dividends to HZL shareholders including VDL and the dividend received by VDL can in turn be upstreamed to VRL in proportion to VRL’s shareholding in VDL which is 69.69%, as reported.

Barclays, DBS, Deutsche Bank and Standard Chartered spokespersons declined to comment. Oaktree, S&P, SSG Capital and Vedanta did not respond to emails and calls requesting comment.

Vedanta Resources' capital structure is below: 



–Malvika Joshi