High dividend from Indian entity boosts Vedanta Resources: Moody’s refinancing efforts


Vedanta Ltd. announced an interim dividend of US$1.56 billion, of which US$1.02 billion will go to holding company Vedanta Resources Ltd. would go.

Vedanta Ltd. announced an interim dividend of US$1.56 billion, of which US$1.02 billion will go to holding company Vedanta Resources Ltd. would go.

A large dividend from its well-funded subsidiary in India has boosted debt-refinancing efforts by Vedanta Resources Ltd., led by billionaire investor Anil Agarwal, Moody’s Investors Service said on Monday.

On April 28, mining company Vedanta Ltd. announced that its board had approved an interim dividend of £11,710 billion (US$1.56 billion), of which US$1.02 billion would be received by its holding company Vedanta Resources Limited (VRL).

VRL owns 69.7% of Vedanta Ltd.

“The large cash dividend is positive for VRL as it offsets some of the liquidity and funding risk associated with the holding company’s debt maturing in the first half of the fiscal year ended March 31, 2023 (FY2023),” Moody’s said an issuer comment.

Concurrently, VRL has made an tender offer to purchase up to $500 million for cash of its $1 billion senior unsecured debt securities due July 2022.

The Notes will be repurchased at par if the Notes are tendered by the early tender deadline on May 11, 2022.

Alternatively, for bonds tendered after the early tender period expires on May 11, but before May 25, 2022, they will be purchased at a 2% discount to face value.

“VRL’s substantial $4 billion in debt for fiscal 2023 includes $2.75 billion at the holding company level alone, with a balance of $1.3 billion at various operating subsidiaries,” Moody’s said.

Of the holding company’s $2.75 billion in debt due, $2.1 billion is due between April and September 2022, with the balance of $650 million to be repaid during the remainder of the year.

VRL’s liquidity needs also include an intercompany loan repayment of $300 million in the first quarter of fiscal 2023 and a large interest bill that has grown to $800 million per year.

“The expected dividend receipt from Vedanta Ltd. $1 billion will therefore help meet only a portion of the company’s immediate liquidity needs,” it said.

Whilst Vedanta Ltd’s high cash dividend has a positive impact on creditworthiness, VRL’s negative rating outlook remains unaffected due to the still significant liquidity needs for the remainder of the financial year.

“We estimate that the dividends just announced and some new bank loans and extensions will help the holding company meet its liquidity needs in the first half of fiscal 2023, but not beyond, indicating that liquidity risk will remain in our view .

“VRL has an additional $2.9 billion of debt due in fiscal 2024,” it said.

Dividends from its liquid and relatively lightly indebted operating subsidiaries and regular reliance on bank loans will remain relevant, particularly given tight liquidity in capital markets and rising yields on VRL’s existing US dollar bonds.

“VRL is weakly positioned with a corporate family rating of B2, which is reflected in its negative outlook attributed to the holding company’s tight liquidity. Apart from its weak liquidity, VRL’s operations are well positioned with favorable underlying demand and supportive commodity prices for continued positive free cash flow generation,” the rating agency said.

In fiscal 2022, Vedanta Ltd., which accounts for much of all of VRL’s earnings generation, generated operating EBITDA of $6 billion, up 66% from $3.6 billion in the previous fiscal year.

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