Stay Away From Expensive M&As: Lenders To Anil Agarwal's Vedanta

Vedanta had put its steel firm, Electrosteel Steel and Tutikorin plant for sale, but it could not find any takers. This has put more pressure on the company to raise funds via different sources. Vedanta entered the steel industry in 2018 after acquiring Electrosteel Steel under the Insolvency and Bankruptcy Code (IBC). It had evinced interest to acquire BPCL under the government's privatisation drive, which could have cost up to Rs 60,000 crore to buyers. Any expensive acquisition would put additional burden on Vedanta and its parent VRL, which are taking several steps to refinance their older debt.

Vedanta, which is in talks with lenders for refinancing of loans worth $1.25 billion at higher interest rates, was the only bidder of BPCL when the acquisition was put off by the government citing poor response.

Vedanta is in talks with several lenders, including Farallon Capital, to refinance its debt. The group has to repay $3 billion of debt in the next two years and rating firms are worried over its cash flows to support debt repayment.

An email sent to Vedanta on Thursday did not elicit any response.

Lenders say Vedanta’s consolidated operating profitability for the 2023 fiscal year is expected to decline mainly due to higher cost of production in key businesses, including aluminium and zinc, along with falling commodity prices from historical levels of the last fiscal year. According to rating firm Crisil, its consolidated Ebitda (earning before interest, tax, depreciation and amortisation) is likely to drop to Rs 35,000 crore in the financial year ended March this year from earlier expectation of Rs 38,000-40,000 crore (versus about Rs 45,000 crore in the previous financial year).

“This, along with reduced cash balance, is likely to result in consolidated net leverage increasing to more than three times in FY23,” it said on March 28.

Vedanta Resources’ adjusted debt is estimated at around $7.4 billion (about Rs 61,000 crore).

In the 2023-24 fiscal year, the consolidated Ebitda of the group is expected to increase to Rs 40,000-42,000 crore, mainly due to healthy commodity prices, better operating rates across key businesses, increased volume growth in aluminium business supported by commissioning of new capacity and expected reduction in the cost of production for aluminium business on the back of alumina refinery expansion and commissioning of captive coal mines, Crisil said.