Vedanta Resources' bonds decline on profit drop at India-listed arm

economictimes.indiatimes.com:

Vedanta Resources (VRL) bonds fell a couple of points as its India-listed conglomerate holding company Vedanta Limited (VDL) reported a 35% drop in operating profit (Ebitda) during the first quarter. VRL faces potential rating action by S&P Global in the absence of a credible refinancing plan by July end for $1 billion bonds.

On Friday, it told investors that the brand fee, at 3% of VDL's annual revenue and subject to reviews within the six-year set mandate, can be increased to 5% without shareholders' approval. VRL's 6.125% $1 billion bond due August 2024 was at 64/66 cents on the dollar, down from 67/68 cents.

The $1 billion 13.875% bond due January 2024 was trading at 87 cents down from 88/89, according to a bond trader. After the earnings announcement, Nomura, in its report, suggested a «liability management exercise» to extend debt maturity across USD bond tranches «is very likely» due to the current weak commodity prices, as handling approximately $3 billion in external debt maturing in FY25 would be challenging.

While the recent rise in brand fees to 3% from 2% levels has strengthened VRL's financial position, the brand fees of 2% from Hindustan Zinc (HZL) to VDL, with 1.7% passed through as a sub-licensing fee to VRL, could mean VRL has collected attributable brand fees of around $400 million through VDL and HZL, Nomura said in its report. The report said that while VRL's medium-term dividend upstreaming ability has been affected by weak commodity prices, its near-term repayment ability on addressing the $1 billion 13.875% bond due January 2024 relies on additional loan raising efforts from commodities trading companies like Glencore/Trafigura and bank lenders before the debt maturity.