Vedanta Resources last week raised Rs41.6bn (US$498m) from a share sale in Vedanta Limited via a club deal days after group chairman Anil Agarwal said there was no intention to do so, as it overtook its Indian mining unit’s own plan for a jumbo equity deal.
In May, Vedanta Limited said it aimed to raise up to Rs85bn through the sale of equity and equity-linked instruments, and market participants were expecting it to sell a qualified institutional placement of shares within a few weeks of the announcement.
However, it was the parent that took the lead, taking advantage of sky-high valuations, with Vedanta Limited shares up 72% this year. On Tuesday it sold a 2.6% stake or 98m shares to a small group of institutional investors via subsidiary Finsider International at Rs424.50 per share, a 6.5% discount to the pre-deal close of Rs454.05. Citigroup was sole bookrunner.
Vedanta Resources has taken various measures to restructure its huge debt and alleviate concerns about its liquidity. Agarwal made an unsuccessful attempt to take Vedanta Limited private in 2020 and now plans to split it into six companies.
The block came soon after Agarwal had told a local news channel on June 20 he did not intend to bring his stake in the unit down further. A Vedanta Resources spokesperson also denied on June 23 that it planned to sell a stake in the company, two days before the trade happened.
"It is a season of owner-led sales in India ECM," an ECM banker away from the deal said, noting that an overnight block is quicker to execute than a QIP, which needs regulatory approval. According to the banker, the parent is sending a signal to the market that Vedanta Limited's QIP price will not be less than the block price. Further, a block before the QIP will give comfort to potential investors that an owner-led share sale will not be launched just after the primary share issue.
The block deal was done to address an estimated funding gap of US$500m at holding company Vedanta Resources as the planned iron ore and steel asset sale under the demerger has been delayed, Nomura wrote in a credit note on June 26.
This was Vedanta Resources' second block in Vedanta Limited this year. In February, Finsider sold 65.5m shares in the mining company at Rs265.14 to raise Rs17.4bn, in a block that was also managed by Citi.
Former JP Morgan banker Viswas Raghavan's move to Citigroup as head of banking has ensured that the bank is now leading many of Vedanta Group's transactions. JP Morgan has in the past worked on Vedanta Resources' sell-downs and share purchases in its Indian unit.
This year has seen record owner-led blocks in India including British American Tobacco in conglomerate ITC (Rs175bn), Whirlpool in its Indian subsidiary (Rs39bn), Vodafone Group in Indus Tower (Rs151bn), Blackstone in IT services provider Mphasis (Rs67.3bn), Wabco Asia in car parts maker ZF Commercial Vehicle Control Systems India (Rs22bn) and China's Shanghai Fosun Pharmaceutical Group in Gland Pharma (Rs17.5bn).
"Finsider International accepted a proposal from one of its banks yesterday [Tuesday] evening to sell a 2.6% shareholding to a group of reputed institutional investors," a Vedanta Resources spokesperson said. "This is in line with the group's commitment to significantly deleverage its balance sheet at both the India and Vedanta Resources levels."
Vedanta Resources now owns 59.42% of Vedanta Limited, according to LSEG data.
Following repayments made from the transaction, Vedanta Resources' debt will have fallen by more than US$650m since the start of the financial year in April, according to the spokesperson. Vedanta Resources has deleveraged by US$3.7bn in the past two years, which brought down its debt to US$6bn as of the end of March this year.
Maiden dollar bonds
Vedanta Limited is also considering a maiden US dollar bond offering in Reg S/144A format with a target of at least US$500m, according to multiple sources aware of the development.
"The company is evaluating all fundraising options, including dollar bonds," a source close to the plan said. Deutsche Bank and JP Morgan are heard to be among the banks in talks with the company.
Vedanta Limited did not immediately reply to an email seeking confirmation of the US dollar bond plan.
It is also considering an up to Rs10bn sale of high-yield rupee bonds with tenors of one to two years at levels close to 11%. Citigroup is heard to be working on the transaction.
A credit analyst said one potential obstacle to the US dollar bond plan is India's regulatory yield cap of around 10.3% on the offshore cost of borrowing. In the past few months, Vedanta Limited has been raising funds in the low teens from private credit investors.
"We should also demand more risk premium if it comes with a longer tenor and/or unsecured structure," in a potential US dollar bond deal, Nomura analysts wrote in a note.
Vedanta Limited said in its financial report for the year ended March 2024 that a liability management exercise that extended the maturities of most of its US$3.2bn of outstanding bonds has given it "newfound liquidity flexibility ... to channel cash flows to important capex projects".
The company plans capex of US$1.9bn in the fiscal year which began on April 1 and said it expects the monetisation of its steel and raw materials business to be completed in the first half of the fiscal year. The sale plans have been delayed over price considerations, according to news reports.
However, some credit analysts said Vedanta Group will still face a funding crunch. "We expect Vedanta Group to still face funding shortfalls of US$850m and US$1.4bn in FY25 and FY26 respectively, which appears manageable for FY25 in light of equity fundraising plans but more difficult for FY26," CreditSights analysts said in a note on June 11.