Volatility in Vedanta Resources bonds rises as group plans to reduce debt

The overseas bonds of Vedanta Resources, the holding company of Vedanta group, are witnessing sharp volatility as the Anil Agarwal-owned group races to cut its debt by declaring higher dividend payouts from its Indian subsidiaries.

Statistics since January this year to date shows that Vedanta Resources bonds maturing next year fell by 5.07 per cent while its US Dollar denominated bonds fell by 5.29 per cent year to date. The bonds are witnessing sharp volatility as several rating firms raised red flags over the group’s debt repayment. Vedanta Resources bonds maturing in 2026 fell by 5.74 per cent since January (see chart).

Bankers said the group’s bonds have been showing volatility since October last year.

“After the group prepaid debt worth $2 billion, their dollar bond prices showed a comeback,” said a banker.

Vedanta did not comment on the dollar bonds.

On Tuesday, rating firm Crisil revised outlook on India-listed Vedanta Ltd’s (Vedanta) term loans and debentures from “stable” to “negative”. 

Crisil said change in outlook reflects possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to one-year maturities for fiscals 2023 and 2024. This is due to increased cash outflow from Vedanta, in the form of dividends, towards large maturing debt obligations at its parent company Vedanta Resources.

“There is increased refinancing risk at VRL which has annual debt maturities of around $3 billion each in fiscal 2024 and 2025 with high near-term maturities of about $ 1.7 billion in the first quarter of fiscal 2024,” it said.

On March 10th, Moody’s had downgraded Vedanta Resources corporate family rating citing an increasing refinancing risk surrounding the holding company. The outlook on all ratings remained negative.

“Ongoing delays in holdco VRL's refinancing efforts and its continued reliance on dividend receipts are depleting liquidity at its operating subsidiaries," said Kaustubh Chaubal, senior vice president.

Moody's said VRL's cash needs for the fiscal year ending March 2024 remain large. They include cross-border bonds of $400 million and $500 million that are due in April and May 2023, respectively, and a $1 billion bond maturing in January 2024.