Vedanta secures $1.25 bn for debt refinancing

CreditWatch Negative List

• S&P Global downgraded Vedanta Resources to CC rating
• S&P saw rising risks of a conventional payment default
• S&P said company has $4.5 bn in debt maturities through March 2025

New Delhi: Vedanta Resources Ltd (VRL), the UK-headquartered parent company of Vedanta group, said it has secured a $1.25 billion loan from private credit lenders to refinance/repay part of the $3.2 billion debt maturing in 2024 and 2025, but this did not prevent S&P Global from downgrading its ratings.

In a statement, Vedanta Resources said the fundraising will help “create a long-term sustainable capital structure” and demonstrate its continued ability to access global capital markets and investor confidence in the underlying business. Without disclosing the names of the lenders, it said loans have been raised from a group of reputable financial institutions to refinance existing liabilities. In parallel, the company is seeking the consent of existing bondholders to extend the debt maturity and amend certain covenants and seek waivers to improve the credit package of its bonds that are due to mature in 2024. Unimpressed, S&P Global downgraded Vedanta Resources to ‘CC’ from ‘CCC’ on potential bond extensions and continues to keep it on CreditWatch Negative list.

“The successful completion of a liability management exercise initiated by Vedanta Resources Ltd to extend the maturities of three of its US dollar-denominated bonds will constitute a distressed exchange under our criteria,” the rating agency said. In case the UK-incorporated commodity producer does not proceed with the transaction, S&P saw rising risks of a conventional payment default. This is given $1 billion in bonds due on January 21, 2024, and limited progress on alternate repayment plans. “We view Vedanta Resources’ proposed liability management exercise involving three of its US dollar-denominated bonds totaling $3.2 billion as a distressed transaction under our criteria,” it said. As part of the exercise, the company intends to address the three bond maturities using a mix of cash and new bonds.

Accordingly, it will exchange about half of the January 2024 bond with new bonds maturing in January 2027, and most of the August 2024 and March 2025 bonds with new amortizing bonds maturing in December 2028. Vedanta Resources did not say if the new $1.25 billion credit was aimed at addressing these three loans maturing next year. S&P said the company has about $4.5 billion in debt maturities through March 2025. On the new $1.25 billion credit facility, the rating agency said it did not regard attributes of the transaction -- such as higher coupons on the August 2024 bond and March 2025 bonds, and certain additional structural enhancements on the bonds -- as providing adequate offsetting compensation for the extension of the maturities. “This is because the transaction also gives priority to the sizable cash flow and proceeds from asset sales to a new $1.25 billion private credit facility over the other creditors.”