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Vedanta to Kick Off Mega Debt Recast Plan

London-listed Vedanta Resources and its subsidiaries have a combined debt of $16.2 billion; refinancing will happen in phases

The Anil Agarwal-promoted Vedanta group of companies may soon launch the largest refinancing exercise in Indian corporate history as it looks for ways to cut costs after a credit downgrade and plunging commodity prices.

London-listed Vedanta Resources and its Indian subsidiary Vedanta Ltd have called for pitches, or request for proposals, from top banks and at least six of the world's biggest banks are likely to respond, people close to the development said. Citigroup, Standard Chartered, Barclays, Bank of America-Merrill Lynch, Goldman Sachs and Deutsche Bank are among those who have been called to make presentations in London, three bankers from different banks revealed.

“They are going back to the drawing board to see how they can do better. They had done a similar exercise in 2012 but the situation is far worse now,“ said a banker, who did not want to be quoted as he is not authorised to talk to the media.

A Vedanta Group spokesperson declined to comment.

The mining and metals giant is battling a global commodity slump caused by slowdown in China, the world's second-biggest economy. Prices of iron ore, oil, aluminium and copper have fallen sharply in the past one year squeezing margins and hurting profitability. Vedanta reported a loss of $1.8 billion and took asset impairment charge of $4.5 bil ion, net of tax, largely related to Cairn India. Rating agency Standard & Poor's downgraded parent Vedanta Resources to BBfrom BB citing oil woes. The parent and its subsidiaries, including SesaSterlite, till recently have a combined debt of $16.2 billion. The group wants to cut gearing to 25% from 40.8%.

This refinancing will happen in phases and is the largest in Indian corporate history after Tata Steel successfully refinanced $7 billion last year.

Much of the debt to be refinanced is in Vedanta Resources and in the aluminium and power business. About $350 million worth of loans is in advanced stage of being refinanced, the group had said in its presentation to investors in March. In June-July 2016, another $2 billion, comprising convertibles and state bonds, is expected to mature.

Analysts tracking the metals and mining sector say the company may have refinancing pressure.

“Negative outlook reflects the risk of delayed improvement in operating performance, which could also lower the covenant headroom and lead to refinancing pressure for the company's $2-billion maturities in mid-2016,“ said Mehul Sukkawala, analyst at S&P, while releasing the rating report on April 7.

Investment bankers say the refinancing debt will be a better option with attractive London inter-bank rates and it could be a precursor of merging Cairn India with Vedanta India. “Debt restructuring is a better option and the company is in the process with attractive LIBOR rates,“ says another investment banker, who earlier executed financing deals for the company. “This could be a precursor for their merger with Cairn India as cash low generation is the main issue for Vedanta right now.“

“They can't improve much anymore operationally. They have to have access cash from Hindustan Zinc and Cairn India to support struggling businesses and retire debt,“ he said.

Vedanta to refinance loans worth $1.6 bn in Indian mkts

Minerals and mining major Vedanta is eyeing the expected low interest rates in India to refinance its short-term loans of up to $1.6 billion (about Rs10,200 crore) with long-term options in this fiscal ending March 2016.

The London-based company has loans worth $2.5 billion maturing in 2015-16, of which $2.1 billion is with the subsidiaries and the remaining $0.4 billion is with the group firm Vedanta Resources Plc.

Vedanta Resources CFO DD Jalan has said that with Indian subsidiaries, half of the immediate total maturities of $2.5 billion relates to short-term loans taken out in these subsidiaries at a relatively low cost to drive finance costs down in the past, when long term project loans had higher rate of interest.

“However, in today’s expected lower interest rate scenario and abundant liquidity conditions in India, we would be refinancing these through a longer tenure instruments during the year in the domestic market,” he said during an analysts conference call. Vedanta Resources total gross debt, excluding working capital loans, stood at $16.2 billion at the end of March 2015. Of this, subsidiaries had a debt of $0.4 billion and the balance is in the holding company.

Separately, the Group said at its earnings release: “Of the $2.1 billion debt maturing in subsidiaries during fiscal year 2016, almost $1.6 billion is in the Aluminium and Power businesses.

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