High-Yield Bond

IFR Asia Awards 2017
3 min read
Frances Yoon

Vedanta Resources was the first Asian resources company to capitalise on an improvement in commodity prices and flush market liquidity in 2017, pricing a US$1bn bond and liability management exercise that helped cut interest costs and strengthen its finances.

The liability management exercise, at the time the largest in the US dollar market from a private-sector Asian corporate issuer, allowed the Indian mining and energy group to redeem around 40% of its 2018 and 2019 maturities and achieve its goal of mitigating refinancing risks.

This was an important achievement for an issuer that had endured the troubles of a soft commodity cycle in the past few years, leading to multiple downgrades and plunging demand for its debt. Yields on its outstanding bonds exceeded 24% in January 2016, with the 2019s peaking at over 35%.

Vedanta’s successful outcome helped draw fixed-income investors back to Asia’s metals and mining sector, and other Asian commodities companies saw the benefits of following its example later in the year.

The January deal, Vedanta’s first in nearly four years in the global debt markets, was well timed, coming at the beginning of the year when investors were keen to engage, and on the back of an improvement in commodity prices. The company also moved quickly to leverage on S&P’s upgrade to B+ from B on January 16, announcing the tender offer later that day and completing the new issue on January 24.

An extensive roadshow with over 100 investors generated substantial demand, with bankers and the company explaining that the merger with its subsidiary and Cairn India would boost operating cashflow, while its operating performance was looking optimistic from higher zinc prices and a boost in aluminium operations.

The price tension created by the tender and the upbeat credit story not only helped the new 5.5-year bonds price inside the curve, but generated a massive tightening of around 40bp for the 2023s during the bookbuilding process.

The 144A/Reg S notes priced at a yield of 6.375%, inside guidance of 6.75% area, after attracting orders of more than US$2.3bn from around 200 accounts. The US bought a hefty 40%, followed by EMEA with 38% and Asia with 22%, drawing a truly global following that remains the envy of its Asian high-yield peers.

Barclays, Citigroup, JP Morgan and Standard Chartered were joint bookrunners for the transaction, which helped Vedanta term out its debt, address near-term maturities and reprice its curve in one fell swoop.

Vedanta returned to the offshore market in July with a seven-year non-call four issue and concurrent tender offer, building on the tight pricing benchmark it had set in January.

Perhaps the biggest reward for proactively managing its debt came in November, when Moody’s restored the company’s Ba3 rating, after it had cut the rating to B2 in March 2016.

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