Vedanta and Anil Agarwal face multiple challenges as it seeks to escape the debt trap

“My dream, my vision is to build a debt-free company within a few years.”

But it won’t be an easy road for the company or its promoters. The parent company faces debt repayments worth nearly $2 billion in fiscal 2025, according to Kotak Institutional Equities. Including these bonds, the company faces $3.6 billion worth of debt repayments in the next fiscal year, the company said.

Many of the group’s bonds are trading below 75 cents on the dollar, a distressed level, according to Bloomberg data. The parent company has repaid all loans and bonds maturing in May and June of this year, reducing total debt to $6.4 billion, a $3.3 billion reduction from March 2022.

Bloomberg reported on September 7, citing people familiar with the matter, that Vedanta Resources plans to meet with bondholders in Singapore and Hong Kong as early as next week. There will be many questions about the group’s future.

Obviously, a lot has happened in the last three years at Vedanta. Promoters had intended to take the company private in 2020 at Rs 87.5 per share, but LIC hit a roadblock as it deemed the delisting price too low and made a bid of Rs 320 per share.

Delisting process failed. The promoters made a public offer to increase their stake to 75% in 2021. This was also poorly received, and the promoter was only able to increase his stake by 10%. Currently, Anil Agarwal and his group of promoters own 68.11% as of June 2023. This does not include the sale from Twinstar, which will be reflected after the end of the September quarter.

At its peak, Vedanta’s stock price was more than four times its delisting price. Still three times their level.

As a result, Mr. Agarwal was unable to take the company private or increase his stake as much as he wanted. Meanwhile, debt continued to mount due to huge dividend payments and an upturn in the commodity cycle.

Eventually he had to reduce some of his stake in the company to reduce its debt burden. Last month, promoter Twinstar Holdings sold a 4.1% stake worth Rs 4,000 crore in Indian listed company Vedanta.

Vedanta Resources has primarily relied on dividends from its India arm and Hindustan Zinc. Vedanta Ltd. paid a dividend of Rs 101.55 in FY 2023, which is even higher than the proposed delisting price.

“We note that a substantial dividend is no longer possible and Vedanta Resources may be forced to sell further shares and assets in Vedanta,” Kotak Institutional Equities said in a note. .

The challenge of Vedanta’s biggest cashiers

Almost 60% of Vedanta’s revenue comes from zinc and aluminum. However, Kotak Securities expects the market balance of both these metals to turn positive amid weak demand. As a result, this puts pressure on both prices and sales volumes for companies.

As announced in October and November last year, Vedanta plans to follow that guidance and expand Balco’s aluminum smelting and distillation capacity. However, data shows that 91 percent of Barco’s capital investment and 75 percent of steel capital investment remain unused. “We believe there is a risk of further delays in project completion and have lowered our size assumptions,” Kotak’s note said.

Rakesh Arora of GoIndiaStocks said, “Pure aluminum products are NALCO and Hindalco and when compared to Vedanta, they are more preferred investments as they have been through more. And for investors, things are better. “It’s hard to really understand what it’s going to look like in the end.” com reported CNBC TV 18 September 4.

Another uncertainty plaguing the company and its shareholders is its expansion into semiconductors. Although Anil Agarwal appears to be fully committed to this, the exit of his joint venture partner Foxconn has been a blow to the company.

Shareholders also need clarity on the location of the semiconductor entity. Earlier, it was said that the business would be run through Vedanta Resources, but later it was said that it would be operated through a listed company.

Brokerage firm Citi said in a note that higher brand fees to the parent company, higher dividend payout compared to capital inflows by Hindustan Zinc, and acquisitions in the semiconductor sector have eroded the listed company’s leverage.

Vedanta’s net debt, excluding Hindustan Zinc, increased by $2 billion from March 2023 to June 2023, mainly due to dividend expenditure, it said. We expect Vedanta stock to fall to Rs 225.

“Certainly, at the current price, it seems like all the negative factors are discounted into the price and probably given the kind of outlook we have for the metals sector itself, as far as metals are concerned, we are We believe we’re in a cyclical uptrend.” And perhaps that’s where companies like Vedanta make a case for recouping the price they’ve lost over the past few months,” said Deven Choksey, director at DRChoksey Finserv. he said.

But will the company manage to weather this storm, and will shareholders continue to realize that huge dividends are a thing of the past? That’s certainly a trillion-dollar question.

(With input from Nigel D’Souza)