As part of the plan, Vedanta Resources is to pledge 13% of its stake in Vedanta Ltd (VDL) to secure a $1.25 billion financing package from a group of lenders led by Standard Chartered Bank and New York-based Cerberus Capital Management to help avert a default on $1 billion of bonds that are due in January, according to people familiar with the matter.
Early Consent Fee
The primary objective of seeking bondholders’ consent is to extend the debt maturity profile and enhance the capital structure, Vedanta Resources said in a statement. This includes amending covenants and seeking waivers to accommodate existing debt at a higher cost. While the bonds were raised at 6-13%, the company is currently borrowing at 17-18%.
The consent solicitation also looks to adjust bond covenants for the proposed demerger at India-listed Vedanta Ltd (VDL). JP Morgan and Standard Chartered Bank are the solicitation agents.
The solicitation process involves an early consent fee of $20 per $1,000 of principal and ends December 27. This means that those bondholders who provide consent to the company for changing the terms of the bond such as its maturity date will be offered a financial incentive if they do so before the cutoff date. Vedanta Resources, Vedanta Resources Finance II, Twin Star Holdings and Welter Trading have announced the proposed restructuring of four sets of bonds – $1 billion of debt due January 2024, $1 billion due in August 2024, $1.2 billion due in March 2025 and $600 million due in 2026.
London-based Vedanta Resources holds a 68.11% stake in Vedanta Ltd, which is listed in India and has separately announced a plan to split its various businesses such as aluminium, oil and gas, power, steel and base metals.
This could result in the creation of five new listed companies. Vedanta Ltd will mainly house the shareholding of Hindustan Zinc, the group’s cash cow, after the split. This plan is subject to shareholder and creditor approvals.
The Vedanta Resources 13% stake in Vedanta Ltd is currently pledged with Oaktree Capital, which will be paid what it’s owed to release the shares. As per the financing terms, the stake held by Vedanta Mauritius Holdings II in Vedanta Ltd will be transferred to the financiers. No new shares of Vedanta Ltd are being pledged, said the people cited above.
The terms were agreed between the financiers and the company on Wednesday, the sources said. Vedanta didn’t respond to queries regarding this part of the transaction.
ET had first reported on December 9 that Vedanta Resources was nearing a $1.25 billion financing arrangement with Standard Chartered Bank and Cerberus Capital. One of the conditions of the arrangement would entail Vedanta Resources clearing the loan it had obtained from Oaktree Capital in 2020. The financing deal is likely to be signed on Thursday. The loan is expected to carry a three-year tenor with an 18% interest rate.
Standard Chartered Bank will underwrite $950 million of the $1.25 billion financing while New York-based Cerberus Capital will cover the remaining $300 million, the people said on condition of anonymity.
Other lenders have agreed to join the syndicate. They include Varde Partners and Davidson Kempner as well as a Hong Kong-based hedge fund. Standard Chartered Bank could ultimately be left holding about $300 million or less of the total loan, said the people cited above.
The loan could have a tenor of about three years with the interest rate in the “high teens”, according to one of the persons.
The financing will be backed by securitisation of Vedanta Resources’ receivables such as royalties earned from group companies in India, said the people cited above.
Vedanta Resources had confirmed to ET that it was close to finalising the financing arrangement on December 8.
“We are in the process of finalising the raising of $1.25 billion for the purposes of refinancing and managing our upcoming maturities,” a Vedanta Resources spokesperson had said.
Standard Chartered Bank declined to comment. Cerberus Capital did not respond to queries.
Over the last few weeks, VRL’s US dollar bonds have rebounded, on expectations that the company would avail of a loan facility.
According to Bloomberg data, VRL’s $1 billion 13.875% bond due on January 21, 2024, is bid at $93.17, the $1 billion 6.125% unsecured bond due on August 9, 2024, is at $69.31 and the $1.2 billion 8.95% bond due on March 11, 2025, is at $76.47.
VRL is proposing to make cash payments of 55%, 8%, and 15%, for the three bonds, which will lead to an upfront cash payment of $550 million for the January 2024 bonds, $80 million for August 2024, and $200 million for March 2025.
In August, Vedanta Resources hired adviser Morrow Sodali to identify bondholders.
S&P had downgraded Vedanta Resources’ rating in September from ‘B-‘ to ‘CCC’, calling the liability management transaction “distressed.”