Metals & Mining News

restructuring: Vedanta Resources downgraded over ‘interest burden’


CreditSights has downgraded its recommendation for Vedanta Resources to ‘market perform’ from ‘buy’ earlier as it does not see a further upside in its bond prices, and expects the burden of higher interest costs to be ‘onerous’.

Bonds of the company have seen a meaningful rally since their restructuring was approved by bond holders in January this year, with the Jan-24 bond, now to mature in January 2027, up by 5 points, and three other bonds higher by 13-20 points.

Vedanta Resources is the holding company of India-listed Vedanta, which has a presence in aluminium, zinc, oil and gas, copper, power, steel and iron ore.

Ahead of its restructuring, Vedanta Resources had $3 billion due in the current financial year, and $4.6 billion in the next. Post restructuring, these liabilities have reduced to $2 billion in 2023-24 (Apr-Mar), and $2.4 billion in FY25.

Even though the “worst” is over for Vedanta Resources, interest cost for the group is likely to remain elevated and burdensome, CreditSights said. The company’s annual interest costs are seen at $800 million in FY25 and beyond, with the “materially” higher interest costs on the restructured bonds adding to this pressure.

The company’s cost of funding is estimated to be north of 12-13%. “…we are uncertain if VRL can cope with the onerous interest burden in the long-term,” the financial research and credit analysis firm said in a note on Thursday.Even after the upstreaming of dividend from its operating companies, and asset and equity stake sales, Vedanta Resources is seen having a funding shortfall of $850 million in FY25, and $1.4 billion in FY26.”Given these considerations and being cognizant of the strong price returns clocked by VRL’s bonds since our Buy recommendation, we shift VRL back to Market perform from Buy,” CreditSights said.

Vedanta is confident that the sale of its steel business will close early in FY25, but CreditSights said that there has been little tangible progress on the sale of this asset. It believes that the company could consider selling stakes in its aluminium and oil and gas businesses.


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