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Nov 23rd 2021

Vedanta Demerger will impact its bonds

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On 17th Vedanta Ltd announced that its board of directors have constituted a subcommittee to evaluate a spinoff of its various commodity categories such as aluminium, iron and steel, and oil and gas businesses into separate listed companies. The objective of de-merger is to bring better transparency in the deployment of the cash surpluses from each business towards reinvestment or towards dividends and shareholder’s value creation.

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Subhasis Mishra

Vedanta Limited � Vedanta Limited (VL) is a diversified company into natural resources like zinc, oil and gas, copper, aluminium, iron ore, and power. Vedanta Resource Limited (VRL) holds 50.1% equity stakes in VL. Its operations include copper, iron ore, aluminum assets at Jharsuguda, and Lanjigarh in Odisha and power divisions. The company runs its aluminum operations through its subsidiary, Balco. Also, a part of the power business is conducted through a wholly owned subsidiary, TSPL. The oil and gas business has been merged with Vedanta, and the group operates the zinc business through HZL and Zinc International in South Africa and Namibia.

 

Credit rating- CRISIL long term rating of AA- (Positive), short term rating A1+

 

Possible de-merger of Vedanta Limited � On 17th Vedanta Ltd announced that its board of directors have constituted a subcommittee to evaluate a spinoff of its various commodity categories such as aluminium, iron and steel, and oil and gas businesses into separate listed companies. The objective of de-merger is to bring better transparency in the deployment of the cash surpluses from each business towards reinvestment or towards dividends and shareholder�s value creation.

 

After spin-off, the standalone debt of Vedanta Ltd will be distributed to newly formed entities as per respective commodities. Consequently, bond yield will get impacted by amount of debt transferred and corresponding commodity price movement.

Parameters (Rs billion)

Q2FY22

Q2FY21

Q1FY22

Revenue from operations

300.48

208.04

281.05

EBITDA

105.82

65.3

100.32

Finance Cost

10.66

13.12

11.82

PAT

58.13

16.42

53.69

Net Debt / EBITDA

0.5

 

0.6

EBITDA Margin

40%

 

41%

 

Financials Performances during Q2FY22-

         Revenue rose by 44% Y-o-Y

         EBITDA increased by 62% Y-o-Y

         EBITDA margin stood at 40%

         Att. PAT (before exceptional items) moved up by 486% Y-o-Y

         Net Debt/EBITDA stood at 0.5x, lowest in last 4 years

 

Vedanta Bonds trade levels-

Date

ISIN

Coupon (%)

Yield (%)

Maturity

12-Oct-21

INE205A07188

8.75

6.55

30-Jun-22

11-Oct-21

INE205A07188

8.75

7.34

30-Jun-22

03-Sep-21

INE205A07188

8.75

7.25

30-Jun-22

31-Aug-21

INE205A07204

7.50

7.25

17-Mar-22

20-Aug-21

INE205A07170

9.20

6.96

09-Dec-22

Source: BSE

 

Issuances of high yielding dollar bond- Vedanta Limited is offering dollar bonds whose yield ranges between 13.875% to 14% and maturing in Jan 2024. This is the highest yielding dollar bond sales in Asia during this year. According to the company sources, raised money will be used to finance the buyback offer for $670 million of notes maturing June 2021.

Failure of Delisting offer of Vedanta shares- Vedanta had tendered a total number of 1,25,47,16,610 shares for delisting from stock exchanges. Vedanta was looking to acquire 1697300000 shares at a floor price of Rs 87.25 per share. The reverse book building process for public shareholders to tender their shares began on October 5 and concluded on October 9. The floor price for share tendering was set at Rs 87.25. However as per regulation, Vedanta needed 134 crore shares tendered by public shareholders for delisting to go through. Therefore, the company has stated that delisting seemed to be failed. Consequently, its shares will continue to remain listed on the exchanges for now. As the company failed to acquire the required number of shares for delisting, it may return the shares tendered to public shareholders.

 

Diversified business risk profile: Vedanta Limited�s business operation spreads over zinc, lead, silver, aluminum, oil and gas, iron ore, power, and steel. The company is among the largest producer in all these segments and has a strong market position in India.

Low-cost production: The domestic zinc, lead, and silver business is supported by low cost of production, large reserves, and continued resource addition. Profitability in the oil and gas business is aided by low operating cost and a business model that ensures capex recovery. Consequently, cash flow in this business is expected to benefit from capex-led improvement in volume over the medium term. Further crude oil prices and base metals� prices, which declined sharply in FY20, are likely to remain low in FY21 and FY21 impacting VL�s operating cash flows.

 

Aluminum Cost Improvements: VL�s raw material source for aluminum, in the form of domestic sourcing of bauxite and linkage coal sourcing, improved substantially over FY18-FY20. The company intends to reduce its costs further through an increase in the share of local bauxite and alumina sourcing, and enhancing captive and linkage coal supplies. 

 

Exposure to regulatory risk: Following a directive from the Tamil Nadu Pollution Control Board, the copper smelting plant at Thoothukkudi, Tamil Nadu, has remained closed since May 2018. In Goa and Karnatak, suspension of iron ore mining operations has impacted negatively on the iron ore business. The company had to also withhold the expansion of its Lanjigarh refinery, Odisha, as environmental approval from the Ministry of Environment & Forests was delayed.

 

 

 

Disclaimer:
Information herein is believed to be reliable but Arjun Parthasarathy Editor: INRBONDS.com does not warrant its completeness or accuracy. Opinions and estimates are subject to change without notice. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The financial markets are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved. Unauthorized copying, distribution or sale of this publication is strictly prohibited. The author(s) of the content published in the site INRBONDS.com may or may not have investments in the assets discussed in the pages/posts.

Copyright © INRBONDS.com by Arjun Parthasarathy 2021

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