Vedanta - Ongoing Privatization - Implications for Bondholders

Lakshmi Iyer, CFA

Credit

<p><a href="https://www.smartkarma.com/entities/vedanta-resources-plc" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> announced a potential delisting of its subsidiary, <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> . We think the probability of the deal going through is high. However, it is critically dependent on price (it will have to be at a substantially higher price than the one currently offered). We would not rule out some back and forth between shareholders and minorities and hence expect volatility in bond prices. Even at a higher price / higher debt levels, interest can be serviced from cashflows; but refinancing requirements will exist for principal. In some sense, that is similar to the present situation. We presently rate the bonds hold. We feel possible volatility on account of deal related developments could possibly provide a better entry point.</p><div class="content-highlight"><p><em>Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.</em></p></div>

Vedanta Resources (VED LN) announced a potential delisting of its subsidiary, Vedanta Ltd (VEDL IN) . We think the probability of the deal going through is high. However, it is critically dependent on price (it will have to be at a substantially higher price than the one currently offered). We would not rule out some back and forth between shareholders and minorities and hence expect volatility in bond prices. Even at a higher price / higher debt levels, interest can be serviced from cashflows; but refinancing requirements will exist for principal. In some sense, that is similar to the present situation. We presently rate the bonds hold. We feel possible volatility on account of deal related developments could possibly provide a better entry point.Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

Vedanta Resources Ltd. - Deal or No Deal?