Vedanta bonds fall as liquidity worries revive amid chip setback

The London-based company’s Indian unit Vedanta Ltd.’s semiconductor-making ambitions were dealt with a blow this week after its Taiwanese partner Hon Hai Technology Group decided to part ways on the planned $19 billion joint venture, leaving the firm alone to develop a project where it holds little expertise.

Vedanta said it remains fully committed to its semiconductor project, raising concerns it will hurt the firm’s cash further and in turn its ability to pay up dividends to its cash-reliant parent.

Vedanta’s outstanding dollar bonds plunged, with notes due in April 2026 falling 6.1 cents this week, the most since five days ended March 24, while securities due in August 2024 declined by the most in about three months. Both the notes have fallen below the 70 cents on the dollar mark this week, a level that is generally considered distressed.

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The bonds were further rocked after a report this week said Vedanta Resources is exploring a debt exchange offer, under which it may partly repay some bonds and exchange the remaining with new bonds that have longer repayment timelines. That implies repaying some of the debt early on even as the miner’s next bond principal payment of $1.1 billion is due in January.

“A potential debt-exchange offer by Vedanta Resources, as reported by the press, may extend dollar bondholders’ exposure to weaker liquidity, increased debt and higher execution risk at subsidiary Vedanta Ltd.,” said Bloomberg Intelligence analysts Mary Ellen Olson and Sheenu Gupta. “Vedanta Ltd.’s execution risks could rise as it targets higher capex and new technology-related investments.”

Vedanta Resources has multiple financing lines, and continuously explores and conducts financing and refinancing exercises, the group’s spokesperson said. “As always, Vedanta Resources will inform the market promptly of any material developments for the group.”

This week’s bond moves reverse some gains made a few weeks back, when all the outstanding bonds were above the 70 cents mark. Vedanta Resources’ notes still outperform the broader emerging market Asia dollar index this year as the commodity giant has repaid all its obligations timely.

The company slashed its total debt to $6.4 billion as on May-end, from about $16 billion the at end of March 2022. The outlook for Vedanta Resources has improved this financial year helped by a recent $1.3 billion fundraising and other options including dividends, stake pledging, CreditSights said in a note Wednesday.

But, risks still remain. S&P Global Investors, that has rated Vedanta Resources’ bonds B-, said last week that the firm’s refinancing risks will rise if it does not lay out a repayment plan at least six months before the actual debt maturity.