PremiumMUMBAI: An increase in stake in its flagship Indian unit Vedanta Ltd will improve the group's access to cash flows, S&P Global Ratings has said.
Anil Agarwal closer to taking his Indian unit private as an offer to buy back 17.5% of shares in Vedanta Ltd. saw robust response. Vedanta Resources is seeking to buy the shares from investors to take its holding closer to the 90% it requires before it can delist the Indian entity.
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S&P Global Ratings believes that the increase in ownership will improve Vedanta Resources' access to cash flows of its operating subsidiaries by reducing dividend leakage, and could enhance its refinancing ability.
"In addition, some surplus cash from the funding for the open offer has materially reduced refinancing risk for the India-based commodity conglomerate for fiscal 2022" it added.
Agarwal-controlled Vedanta Resources is the parent of Mumbai-listed Vedanta, which houses mining and oil & gas operations of the group.
"Vedanta Resources has secured about $2.15 billion to fund the open offer, through $1.2 billion of senior unsecured bonds, $350 million of bank loans, and $600 million of funding from Oaktree Capital Group and it is likely to spend about $1.2 billion for the additional 10% stake purchase, following the completion of open offer for up to 17.5% stake in Vedanta Ltd," the global rating agency said.
On the back of high commodity prices, operating cash flows has benefited the most and based on that, Vedanta's ability to pay dividends has strengthened.
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Premium Premium Vedanta Resources' ability to refinance its near-term debt maturities, especially the $5 billion bond maturing in fiscals 2023 and 2024, remains the key rating driver and to service those debts it relies heavily on the commodity cycle and capital markets.
"Free cash flow at Vedanta Resources is about $1.5 billion, in addition to $3.6 billion of consolidated cash as of December 31, 2020 and cash balance too have strengthened materially at the end of fiscal 2021" S&P said.
Vedanta Ltd reported consolidated net profit of Rs4,224 crore in the December quarter, up 58.5% on year while net sales grew 6.5% to Rs22,498 crore.
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