Sunday, June 16, 2024

It is a risk to consider bringing back Vedanta, says Sean Tembo

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It is going to be risky for government to consider bringing back Vedanta to run Konkola Copper Mines (KCM) because rumours are swelling that the firm may be having financial challenges, Patriots for Economic Progress (PeP) president Sean Tembo has said.

Mr Tembo said that it was going to be suicide if government allowed Vedanta to return because the firm was facing a number of challenges and looking at the way it conducted itself the same would happen.

My plea is that government should not entertain the return of Vedanta because history is there for us to see, contractors were not paid plus other problems that were faced during its run at KCM,” he said.

Meanwhile, Anil Agarwal’s once-London-listed Vedanta Resources Limited has a pile of debt, including a $1 billion bond due January.

However, Vedanta Resources did manage to shed its net-debt burden from almost $10 billion in March last year to a little under $8 billion. With the listed unit declaring a dividend last month, its parent and majority shareholder is “highly likely” to meet its obligations until September 2023, according to S&P Global Inc. So far so good. But it was when Agarwal tried to secure the finances for $1.5 billion in loan and bond repayments between September this year and January 2024 that he hit a roadblock

What was supposed to be a quick dash to the ATM has become an uncertain enough adventure for Vedanta Resources bondholders to drive the price of the August 2024 note below 70 cents on the dollar. The next few weeks will be crucial for fundraising. If it fails, the issuer’s B- credit rating, already deep in the junk-bond category, could come under pressure, S&P said this month. Adani’s net debt pile of $24 billion may be three times as large as Agarwal’s, but his bonds are still rated at the lowest rung of investment grade.

What happened to get everyone worried was this: Hindustan Zinc Ltd., which Agarwal had started buying from the Indian government two decades ago in a privatization deal, has a cash pile, albeit much smaller than before, of $2 billion. Plus, the miner garners between $300 million and $600 million Ebitda (1) every quarter. So Vedanta Ltd., which now owns 65% of the firm, decided in January to offload THL Zinc Ltd. Mauritius to Hindustan Zinc. That cash deal, representing mining interests in South Africa and Namibia, was valued at roughly $3 billion in phases over 18 months. Since Vedanta Ltd. is 70% owned by Vedanta Resources, it would have taken care of the latter’s liquidity needs.

Except there was one problem. New Delhi, which still owns about 30% of Hindustan Zinc, balked at the transaction.

We would urge the company to explore other cashless methods for acquisition of these assets,” the Indian government said in a Feb. 17 letter, threatening to explore legal avenues if Hindustan Zinc still decided to go ahead with the purchase.

This presents two problems for the mining magnate. First, unless China’s economic revival turns things around, the post-pandemic era of supernormal commodity profits could be over. If Agarwal can’t take Hindustan Zinc’s cash all the way up to his privately held Vedanta Resources, his ability to pay down debt may be impaired, forcing him to borrow more. But with the Fed giving no indication that it’s done raising rates and existing Vedanta Resources bonds dropping in value, he might struggle to raise fresh money at a reasonable cost.

1 COMMENT

  1. Our leaders , I thought that our leaders were well informed about the world economics and have the know how they work but to my disappointment this is not true .
    To my surprise our president doesn’t know that there is an economic war fare raging right now and blindly he has joined only as it as a weapon of the west to fight Russia and China.
    This is the elephant we have in this country being used as Ukraine is being used

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