CreditSights expects VRL to be successful at servicing its debt maturities in the next 12 months, even though it expects the company’s credit metrics to deteriorate mildly. Vedanta has $4.2bn debt maturing in FY23-24, of which it has already repaid $2bn by early June. It has a $1bn bond due in January 2024.
“VRL will likely have to rely heavily on external fundraising of $2.1 bn and an additional $950 mn to plug a funding gap,” the report said.
Recommending a buy, CreditSights said that VRL’s failure of refinancing talks or an inability to tie up funds for late-FY24 refinancing poses downside risks.
“If the refinancing is successful (which we expect), we anticipate the bond prices will rally by 10-15 points broadly across the curve, while a failure to do so would likely result in a sharp sell-off in bond prices to 50 cents to the dollar,” it added.
VRL’s offshore bonds are traded at a steep discount. The January 2024 due bonds are traded at $92.2, August 2024 due bonds at $71.7, and April 2026 bonds at $72.1.
VRL has recently raised $1.3bn, which provides greater financial flexibility and indicates VRL’s continued access to the loan markets. This includes a $850mn five-year loan from JP Morgan and Oaktree, $250mn from Glencore and $200mn from Trafigura. Also, VRL has $1.7bn of short-term investments in various bank deposits, quoted bonds, and mutual funds as of March 2023.The research report stated Vedanta’s FY23 results ‘were poor as we had expected.’ Its revenues rose 3%, EBITDA (earnings before interest, taxes, depreciation, and amortisation) fell 26% from higher cash costs of production across the aluminium, zinc, oil and gas, and Steel segments. The former three segments are VRL’s top three EBITDA contributors.