Vedanta Resources Limited (Vedanta), the parent company of Mumbai-listed mining giant Vedanta Ltd, announced on Wednesday that it has made significant progress in reducing its debt. The company, led by billionaire Anil Agarwal, revealed that it has successfully repaid USD 400 million of loans, resulting in a reduction of its gross debt to USD 6.4 billion. This marks a substantial milestone in Vedanta’s deleveraging strategy, which was initiated in March 2022 and has already led to a reduction of USD 3.3 billion in debt.
In addition to the recent debt repayment, CreditSights, a Fitch Group firm, has expressed optimism regarding Vedanta’s refinancing risk for its near-term debt maturities. The firm highlighted a new USD 850 million loan refinancing that has contributed to lower refinancing risk. Although further funds are required to fully finance Vedanta’s estimated USD 2.1 billion debt refinancing needs for the fiscal year 2023-2024, CreditSights believes that Vedanta has various funding options at its disposal, including share pledges and dividend upstreaming.
Vedanta remains committed to reducing its debt burden in the future. The company’s gross debt currently stands at USD 6.4 billion, a decline from USD 6.8 billion in April 2023, USD 7.8 billion in March 2023, and USD 9.7 billion in March 2022. While the company has not specified a timeline for achieving zero gross debt, it intends to continue reducing its debt throughout the fiscal year 2023-2024. Vedanta is confident that its world-class asset base and the strong demand, particularly in India, will support its operational performance and contribute to the ongoing debt reduction.
Nevertheless, refinancing risk remains a concern, especially with regards to Vedanta’s USD 4.1 billion debts due in the fiscal year 2023-2024. External fundraising will likely play a crucial role in securing the necessary funds for refinancing, estimated at USD 2.1 billion, with an additional USD 950 million required to bridge the funding gap.
However, CreditSights believes that Vedanta’s track record of successfully navigating such challenges, recent debt reductions, and ongoing fundraising efforts will enhance its ability to secure the necessary financing. Alternative funding channels, including the pledging of promoter stake in Vedanta Ltd, as well as dividend upstreaming from operating companies, remain viable options for Vedanta.
CreditSights also emphasized that Vedanta’s timely debt repayments and progress in refinancing endeavors can positively influence lending sentiment. However, it is important to note that there are execution risks involved, as the finalization of the USD 1-1.25 billion loan refinancing is still pending. Any lack of progress or failure to secure the loan by late FY24 could pose downside risks to CreditSights’ recommendation.
Overall, Vedanta’s commitment to debt reduction, coupled with its robust operational performance and available funding avenues, positions the company favorably as it continues its journey toward achieving long-term financial stability.
Vedanta Limited, an Indian multinational mining company, is based in Mumbai, India. Its primary mining operations are focused on iron ore, gold, and aluminium, with mines located in Goa, Karnataka, Rajasthan, and Odisha.
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