Vedanta shares decline nearly 9% ahead of $2-billion fundraising

S&P Global Ratings has stated in a report that if Vedanta Resources is unable to advance either the $2 billion fundraising exercise or the sale of its international zinc assets to Hindustan Zinc Ltd in the near future, the company’s credit rating will face immediate strain

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Vedanta Ltd shares stayed in the red for eight consecutive trading sessions, with a decline of nearly 9 percent on February 28 in anticipation of its $2-billion fundraising scheduled to begin in the coming weeks.

The stock lost over 8.82 percent, the biggest fall since September 16, 2022 to hit over five-month low of Rs 262 by 11.20am on Tuesday. In the last eight sessions, the stock slumped 15 percent during this period. The stock declined over 13 percent so far this year.

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S&P Global Ratings stated in a report that if Vedanta Resources, led by mining billionaire Anil Agarwal, is unable to advance either the $2 billion fundraising exercise or the sale of its international zinc assets to Hindustan Zinc Ltd in the near future, the company’s credit rating will face immediate strain.

According to reports, the government is not in favour of Vedanta Resources’ plan to sell its global zinc assets to HZL, its Indian subsidiary, for almost $3 billion. The government has raised various concerns, including the valuation of the assets, as it owns a 29.54 percent stake in HZL, which was privatised over 20 years ago.

After Vedanta Ltd declared a dividend in January, S&P reported that Vedanta Resources is fully funded until March 2023. However, the company has debt maturities of only $15 million between July and September, which means it will need to raise a minimum of approximately $500 million to meet its obligations until June.

During this period, Vedanta Resources will have to repay $300 million of inter-company loans and $350 million to two relationship banks. Unless significant fundraising occurs, the company will be left with very little cash, around $500 million, after the repayments.

Also Read: Hindustan Zinc’s bet on Vedanta’s assets hits rough patch as govt opposes move

Consequently, external funding will be critical for debt maturities after September. These include $500 million of loan repayments in the quarter ending on December 31, 2023, and a $1 billion bond due in January 2024.

At the end of the third quarter of FY23, Vedanta Ltd net debt increased by Rs 6000 crore due to the company’s sustained capital expenditures and dividend payouts. However, in the first nine months of FY23, Vedanta Ltd reduced its debt at the holding company Vedanta Resources Limited (VRL) by $1.7 billion, which is in line with its commitment to reduce debt by $4 billion over three years.