Vedanta shares tad higher ahead of board meet to mull NCD issue, $2-bn loan due date nears

The proceeds from the issuance of NCDs may be used towards repayment of parent Vedanta Resoucres’ bonds worth nearly $2 billion, due in FY25.

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Shares of Vedanta opened around a percent higher on September 18 after the company announced that it will hold a board meeting on September 21 to consider issuing NCDs, as debt repayment worth $2 billion shortly falls due. The company’s board is likely to discuss the proposal for the issuance of non-convertible debentures (NCDs) on a private placement basis in the meeting. The company also mentioned that this proposal is part of its routine refinancing that is undertaken in the ordinary course of business.

At 09.26 am, shares of Vedanta were trading marginally higher at Rs 236.55 on the NSE. The stock is also down over 23 percent year-to-date.

The Anil Agarwal- led company’s parent Vedanta Resources is staring at repayments of bonds worth nearly $2 billion, due in FY25. Including these bonds, the company is facing debt repayment worth $3.6 billion in the next financial year, according to Kotak Institutional Equities. The proceeds from the issuance of NCDs may be used towards repayment of those bonds.

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Vedanta Resources’ high leverage and funding gap of $3 billion in FY25 are key areas of concern and overhang, the KIE report also stated. It is worth mentioning that Vedanta’s parent company has largely mitigated the funding shortfall for FY24 by implementing several one-time measures. These measures include a 6-percent stake sale in Vedanta. However, it should be noted that the $2.2 billion bond maturity in FY25 presents a more significant financial challenge.

On that account, KIE believes that large dividends for Vedanta are no longer possible and Vedanta Resources might be forced to further divest stake/assets in its subsidiary. “Moreover, the bleak commodity cycle suggests a downside risk to earnings,” KIE said as it retained a ‘sell’ rating on the stock, while reducing its target price by 7 percent, citing an unfavourable risk-reward.

Other analysts covering the stock are also not very optimistic over its prospects as Bloomberg data indicates only three out of the 14 brokerages tracking Vedanta have a buy rating on the stock. On the other hand, five have a ‘hold’ call while six maintain a ‘sell’ rating on the stock.

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