The massive debt load of Vedanta Resources, India’s largest mining company, has come into focus as a result of the collapse of the Adani group stocks following accusations of fraud.
Vedanta Resources, a heavily leveraged company with a market valuation of $13.23 billion, also has enormous payment obligations, including bond repayments of $1 billion due in January of 2019. Over the past 11 months, the Mumbai-based business may have reduced its net debt by $2 billion to $7.7 billion, but that might not be enough.
The ability of Vedanta to repay debt after September may rely on fundraising efforts and a planned sale of its South African zinc mines to Hindustan Zinc, according to earlier this month’s report from S&P Global Ratings. The company owned by Anil Agarwal will be in big trouble if these transactions don’t go through.
Vedanta Resources must pay back $300 million in intercompany debts and $350 million in interest to two banks by June of this year. Vedanta must thus collect at least $500 million by that time.
Over the course of the upcoming fiscal year, it intends to use internal resources to satisfy half of the demands. According to a report by S&P Global Ratings, it intends to restructure the remaining amounts.
According to the story, additional Vedanta dividends and management fees could cover about $1.5 billion of the $2 billion the parent company needs between April and June, including inter-company loans and interest costs.
Vedanta will only have $500 million left over if no money are raised by that time. To pay back $500 million in the December quarter and $1 billion in notes in January 2024, that simply won’t be enough.
Hindustan Zinc could be the answer to Vedanta Resources’ financial woes. The largest lead and zinc miner in India is owned by Agarwal’s business to the tune of 65%, with the Indian government holding the remaining 29.5%.
In order to raise $3 billion over the course of 18 months, Vedanta has been attempting to sell some of its mines in South Africa and Namibia, with Hindustan Zinc as a possible buyer.
Vedanta, in the opinion of S&P Global Ratings, has no choice but to follow through on the agreement, failing to do so would result in a reduction of its debt rating.
However, this could be a pricey transaction for cash-strapped Hindustan Zinc. The Indian administration shares these concerns. In a letter dated Feb. 17, the company stated, “We would urge the company to explore other cashless methods for acquisition of these assets.”
In the event that Hindustan Zinc proceeds with the acquisition, the government is considering legal options.
Fears of a financial wipeout have driven Hindustan Zinc’s shares down by almost 15% since the deal’s announcement in January, to the lowest level in a month. Vedanta’s share has decreased in value by 5% during this period.