$2 bn-bid for Jaiprakash Associates 'credit negative' for Vedanta

Acquisition will expose Vedanta to bankrupt company's real estate, cement, infrastructure businesses: CreditSights

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Vedanta group becoming the top bidder for bankrupt infrastructure builder Jaiprakash Associates (JPA) is “credit negative” for metals and mining giant Vedanta Ltd (VEDL) and its unlisted parent Vedanta Resources Ltd (VRL), analysts at CreditSights have said.

 

Vedanta has offered Rs 17,000 crore ($2 billion) for JPA under the insolvency process, proposing Rs 4,000 crore as upfront cash and the rest staggered over five to six years. The offer is well above JPA’s net value of Rs 12,500 crore.

 

A deal will give VRL new revenue streams through JPA’s cement, real estate and infrastructure businesses, but CreditSights noted that JPA’s earnings are declining and ebitda was negative in FY25. Factoring in consolidation, the acquisition could push VRL’s net leverage to 2.7x–2.8x.

 

“We view the acquisition as credit negative for Vedanta Ltd and VRL, considering JPA’s heavy debt stack, deteriorating earnings, and little strategic synergistic rationale (in our view),” said CreditSights in a report.

 

“The acquisition exposes Vedanta Ltd to the real estate, cement, and infrastructure segments, which tend to be more cyclical, volatile and working-capital intensive; we are watchful of new venture execution risks too. The acquisition also suggests VRL’s increasingly aggressive capex and expansion appetite, which we have regularly highlighted as a key risk for Vedanta in the recommendation rationales in our previous reports,” it said.

 

The report said VEDL’s expansion drive could restrain improvement in free cash flow and limit dividends to VRL. It could affect VRL’s stated goal of cutting gross debt to $3 billion by FY27. “Just yesterday [Tuesday], Vedanta Ltd was reported to have expressed interest in acquiring a large 330 Mw [megawatt] hydro project in Uttarakhand for an undisclosed fee,” CreditSights added, pointing to a pattern of aggressive deal-making.

 

CreditSights questioned Vedanta’s rationale for pursuing the acquisition at a steep price, adding that execution risks are compounded by VEDL’s lack of experience in JPA’s core sectors.

 

Lenders to JPA face a haircut of around 71 per cent on admitted claims of more than Rs 59,000 crore and they are expected to vote on Vedanta’s proposal soon. The deal will require approvals from the National Company Law Tribunal and the Competition Commission of India.