In this column, Reorg editors and reporters take turns writing about trends in high yield, distressed debt, restructuring and bankruptcy in major Asian markets including China, South Asia and Southeast Asia. Any opinions or other views expressed in this column are the author's own and do not necessarily reflect the opinions or views of Reorg or its owners. Send any question or concern you may have to firstname.lastname@example.org.
Metals-to-mining company Vedanta Resources Ltd. (VRL) needs to come up with a quick, smart and sustainable solution to tackle its large and closely spaced debt maturities, estimated at about $4 billion for the next fiscal year. Bondholders have been pressuring VRL since July 2021, demanding that it pare its debt using dividends from Indian opcos which have benefited from the rally in zinc and aluminium prices.
But Vedanta is well known for structuring astute last-minute deals to keep its refinancing game on, and is yet again keeping investors on edge, as they await the big reveal on its plans to meet debt obligations which are rapidly closing in. The difference this time is that investors have begun questioning Vedanta’s ability to make timely decisions, and to understand and manage the complex deal negotiations needed to arrange funding from multiple sources at the same time as it deals with high-level management changes.
Significantly, the company has been missing windows available to de-lever using dividends.
In July 2021, without discussions with its bondholders, Vedanta sought to raise the debt cap
from $3.6 billion to $5 billion at step-down subsidiaries Twinstar Holdings Ltd. and Welter Trading so that it could raise additional debt for refinancing. Bondholders pushed back on the proposal, which would have led to dilution of collateral, and instead the company cut its debt using dividends.
The $1.7 billion dividend received last fiscal year, upstreamed from Vedanta’s Indian listco Vedanta Ltd. (VDL), did go towards debt servicing, including interest payments. But debt was not ultimately pared as Vedanta simultaneously took on additional debt
to purchase a further 14.6% stake in VDL through a voluntary open offer, to plug dividend leakage to public shareholders.
The company has stated
that it has reduced debt due in fiscal year 2023 by $1.4 billion. But to boost investor confidence it needs to announce a chunky dividend to pare its debt sufficiently in one go to avoid any near-term repayment stress. That would simultaneously prove management’s credibility and its intent to de-lever. Vedanta’s management, though, still seem keen to reserve the dividend strategy for a later date, and are instead focused on raising bank loans to meet refinancing needs
The problem with that strategy is that the company’s reputation among lenders took a beating
after its corporate family and senior unsecured bond ratings were downgraded
by Moody’s on Oct. 31. Again, Vedanta has to take the blame for digressing from its deleveraging plans at the last minute, after it decided not to proceed with a tender offer in October
for its $400 million 8% bonds due April 2023 and $500 million 7.125% bonds due May 2023.
Moody’s in an Aug. 3 report
had flagged a downgrade risk if Vedanta Resources was unable to arrange long-term funds to refinance its bonds due 2023 by Oct. 31, and the company told multiple investors it was considering a tender offer for the due 2023s by mid to end-October. Instead, it decided to use around $250 million in low-cost loans
from state-owned banks to repay upcoming bank debt, resulting in an immediate downgrade from Moody’s.
The damage post the downgrade might have been more limited had Vedanta not gone ahead and discontinued its ratings engagement with Moody’s. This has resulted in bank lenders conducting additional due diligence, causing delays in closures of needed loan financings.
The tender offer required $300 million to $400 million, which could have easily come from dividends and prevented a hit on both Vedanta’s credit rating and its perception in the market. The events should teach Vedanta’s management that a strategy of constantly cutting corners is penny wise but pound foolish.
The need to present a consistent and sustainable strategy to investors is more important against the backdrop of recent high-profile changes in Vedanta’s finance team. In April 2021, Vedanta’s CFO GR Arun Kumar left, after eight years with the group during which he led deals including the merger of Vedanta Ltd. and Cairn India. More recently, in November, Vedanta appointed Anupam Jindal as its new treasury head. Jindal previously served as CFO at Sterlite Technologies Ltd. Jindal replaces Divya Goyal who had been Head, Treasury and Corporate Finance at the group, as reported
Developing a deep relationship and maintaining constant communication with investors is vital to Vedanta, given its heavy reliance on bond debt. Investors now face the need to build new connections with key personnel at the firm due to management churn, and new incumbents need to show that they understand the company’s working over the decades.
Vedanta can steer through its debt maturities until March 2023 without a hiccup. Its trouble might begin if it is unable to close the loans with the state-owned banks as anticipated.
There are still a few steps it can take to get cash to meet its debt repayments. One is the sale of its steel business, but Vedanta has stated that it does not want to sell at this moment. Second, the company could consider selling a stake in VDL, but given the effort Vedanta Resources has taken to boost its stake in VDL to plug cash leakage, dilution of its equity holding again is unlikely to be a favored option.
For now, Vedanta needs to liaise with its banks more effectively to ensure a robust loan pipeline is in place to supplement dividends from opcos, and tackle upcoming debt maturities. Keeping its bondholders updated on its plans - and not diverging from them at the last minute - would bolster investor confidence. Metal prices are still favorable, though commodities move in cycles, and are always susceptible to external shocks.
Bearing that in mind, the company should try and make use of dividends as much as possible to bring down its debt. Most importantly, Vedanta should stop trying to cut corners and wait for a favorable window to deleverage. With few easy options on the table, the time to act is now.
–Malvika Joshi, India Editor
===EOS===From Our Financial & Legal AnalystsBelow are links to recent reports written by our financial and legal analysts:Yango Group
Reorg’s legal analysis
on Chinese real estate developer Yango Group considers the Hong Kong winding up of one of its offshore note issuers and possible distinguishing features of the proceedings. The analysis also considers potential recovery options for a liquidator against the notes’ Mainland guarantor and explores the group’s dual offshore issuance credit structure.Reorg Asia Watchlist AUSTRALIA Greensill Capital
The English High Court has granted limited leave under section 423 of the Insolvency Act, 1986 for Credit Suisse to file a $400 million claim against SoftBank arguing it defrauded creditors by entering into a transaction at an undervalue. The application is part of a long-threatened lawsuit against SoftBank and its affiliates. Credit Suisse has made an application for discovery proceedings in the U.S. in anticipation of this claim. In 2019 Credit Suisse Virtuoso Sicav-Sif, a sub fund of Credit Suisse’s supply chain finance fund, invested in $400 million of notes originated by the now defunct Greensill Capital.
Reorg’s coverage of Greensill is HERE
Boart Longyear Group Ltd. (Boart Longyear) has appealed an adverse ruling by the Federal Court of Australia in relation to patent litigation, where it found that Boart Longyear Australia and Globaltech’s TrueCore UPIX Tools infringed Australian Mud Company Pty Ltd.’s Patent, and determined that various orders came into effect, including restraining Boart Longyear Australia and Globaltech from any further supply or hiring of the TruCore UPIX Tools in Australia. The appeal is expected to be heard in 2023.
Reorg’s coverage of Boart Longyear is HERE
.CHINA China Real Estate
The Chinese government has released the “Third Arrow,” the third and final prong of a three-part stimulus finance scheme, with China Securities Regulatory Commission – loosely China’s equivalent of the SEC – announcing five measures aimed at expanding equity financing for real estate companies. China Bond Insurance Co. Ltd. has largely increased the loan-to-value, or LTV, ratios for collateral posted by real estate developer issuers as a counter-guarantee for bond issuances. It also has accepted certain hotel assets as collateral, in an apparent move to expand the types of acceptable collateral.
Read Reorg’s coverage of China Real Estate HERE
This Chinese online video platform has engaged Kirkland & Ellis and Houlihan Lokey as legal and financial advisors, respectively, to explore financial options.
Read Reorg’s coverage of iQIYI HERE
This developer has sweetened certain terms of an onshore debt restructuring proposal by shortening the term-out periods. Onshore creditors finally approved the revised plan after several delays in voting deadlines. Offshore, PJT Partners and Ropes & Gray, advisors to an ad hoc group of offshore bondholders, held a call with investors and said that the advisors have agreed to adjourn the Cayman winder hearing to Jan. 10, in exchange for the company agreeing to rules of engagement including fair treatment to all classes of creditors and offshore assets not to be used for onshore restructuring.
Read Reorg’s coverage of Logan HERE
A term sheet shows the latest debt issuance effort from Country Garden, which plans to issue up to RMB 1B corporate bonds with 100% CDS support from securities firms.
Read Reorg’s coverage of Country Garden HERE
.SOUTH ASIA Vedanta Resources
Vedanta Resources Ltd. plans to use the $520 million dividend from its Indian listco Vedanta Ltd., announced in November, to mostly repay its loan maturities due this month and in January 2023. The metals-to-mining major also has no plans to launch a tender offer immediately for its $400 million 8% bonds due in April 2023 and $500 million 7.125% bonds due in May 2023, as it awaits closure of loans with state-owned banks.
Read Reorg’s coverage on Vedanta Resources HERE
.Adani Green Energy
Adani Green Energy Ltd., is planning a secured non-convertible debenture issue to raise around INR 10 billion ($122.5 million) as it considers buying back some of its outstanding USD bonds to bolster investor sentiment ahead of its proposed $1 billion bond issue next quarter.
Read Reorg’s coverage on Adani Green Energy HERE
Greenko Energy Holdings is negotiating USD loans totalling $475 million from a clutch of international banks to refinance its entire $435 million 6.25% notes due February 2023.
Read Reorg’s coverage on Greenko Energy HERE
.Srei Infrastructure Finance
Srei Infrastructure Finance and Srei Equipment Finance joint lenders have received resolution plans from a consortium of Varde Partners with Arena Investors LP; National Asset Reconstruction Company Ltd. (NARCL); and Authum Investment & Infrastructure Ltd.
Read Reorg’s coverage on Srei Infrastructure Finance HERE
.GMR Hyderabad International Airport
GMR Hyderabad International Airport Ltd. (GHIAL), a step-down subsidiary of GMR Airport Infrastructure Ltd., which launched tender offers for its $300 million 5.375% notes due April 2024 and $300m 4.75% notes due February 2026 on Dec. 1, is looking to finance the transaction by issuing an INR 10 billion ($123.2 million) secured non-convertible debenture (NCD). The NCD issue launched on Dec. 5.
Read Reorg’s coverage on GMR Airport Infrastructure HERE
.Piramal Capital & Housing Finance
Piramal Capital & Housing Finance Ltd. is inviting bids for INR 13.92 billion ($169.2 million) non-performing assets under the Swiss challenge method, based on an existing offer of INR 3.5 billion.
Read Reorg’s coverage on Piramal Capital & Housing Finance HERE
.SOUTHEAST ASIA Agung Podomoro Land
PT CPM Assets Indonesia, which controls the Central Park Mall, borrowed around IDR 1.9 trillion ($121.1 million) through a loan from Bank Danamon Indonesia, a consolidated subsidiary of MUFG Bank.
Read Reorg’s coverage of Agung Podomoro Land HERE
.Kawasan Industri Jababeka
Indonesian real estate developer PT Kawasan Industri Jababeka Tbk (Jababeka) announced on Dec. 8, that as of the expiration time of the exchange offer and consent solicitation at 11:59 p.m., New York City time, on Dec. 7, holders of old notes had validly tendered $265.5 million in aggregate principal amount of the $300 million 6.5% guaranteed senior notes due October 2023, representing 88.95% of the total principal amount of the notes outstanding.
Read Reorg’s coverage of Jababeka HERE
PT Garuda Indonesia (Persero) Tbk has filed a notice adjourning the Dec. 14 hearing in the U.S. Bankruptcy Court for the Southern District of New York to enforce its Indonesian suspension of debt obligations, or PKPU plan.
Read Reorg’s coverage of Garuda Indonesia HERE
.No Va Land
Warburg Pincus’ representative on the Novaland Group board, Jeffrey David Perlman, has resigned effective on Nov. 30.
Read Reorg’s coverage of No Va Land HERE
Bui Thi Thu Ha, CFO of Vietnamese Property Developer BIM Land Joint Stock Company, in response to investor questions regarding the indicative price of its $200 million 7.375% senior notes due May 2026, said the company is looking into buying back some of its USD bond.
Read Reorg’s coverage of Bim Land HERE
.Fundraising & People MovesFTI Consulting, Inc.
on Dec. 6 announced the appointment of transactions expert Tadashi Yamazaki
as a Managing Director in the firm’s Corporate Finance & Restructuring segment in Tokyo. Yamazaki joins Senior Managing Director Kenneth Smith
, whose appointment earlier this year formally launched FTI Consulting’s Corporate Finance & Restructuring segment in Japan. The segment at FTI Consulting advises on complex restructurings, turnarounds, transformations and transactions, helping companies and their stakeholders address major financial, operational and transactional challenges.Ashurst announced
on Nov. 30 that it has received approval from the Ministry of Justice in Korea
to establish a joint venture (JV) with full service local law firm HwaHyun
. Once established, Ashurst, through the JV, will become the first global firm permitted to practice Korean law since the legal market opened in 2011. Established in 2001, HwaHyun is a full-service Korean law firm specializing in corporate law, intellectual property and technology law, investigations, criminal defense and commercial dispute resolution with a deep experience and understanding of the Korean market.
Separately on Dec. 1, Ashurst
announced it has appointed Lance Jiang
as a partner in the restructuring, insolvency and special situations practice, based in its Hong Kong office. Jiang has two decades of experience in the region, and advises on complex cross-border restructurings and insolvencies with a Chinese nexus. He has represented creditors' committees, bondholders, financial institutions, special situation funds, debtors, controlling shareholders, liquidators, agents and trustees on special situations matters involving NPLs, restructurings, bankruptcies, insolvencies and reorganizations. He has also acted on cross-border structured corporate finance transactions, including acquisition financings, equity margin financings, pre-IPO and leveraged financings, real estate financings and other event driven financings, the announcement states.Week AheadBelow is a list of events on the Reorg Asia Calendar for the next two weeks: