Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Vedanta Resources PLC: Holding Firm Despite Rising Net Debt

Vedanta Resources: 9-Month Results on Track

Vedanta Resources: ZINCronized Deleveraging

Credit Researcher - South Asia, Bondcritic

Shrey Bhandari

Credit Researcher - South Asia

Credit

<a href="https://www.smartkarma.com/entities/22202" target="_blank" data-smartkarma-citation="entities:22202:1">Vedanta Resources (VED LN)</a> (Vedanta) was delisted from the London Stock Exchange (LSE) on 01-October-2018. This came on the back of Volcan Investments Ltd, controlled by Executive Chairman Anil Agarwal, successfully buying out the company’s shares in September. The privatization was more noticed by the market since it happened after a series of protests against the death of 13 people at Vedanta’s site in Tamil Nadu, India in May 2018. Between 01-October-2018 and 12-November-2018, the price of VEDLN 24s has dipped slightly from USD93.97 (ask) to USD91.84 (ask). This can be attributed to the delisting but does not imply a long-term change in prospects in our view as the company retains a robust business model.
Despite the delisting, the company remains in a strong position in the Indian natural resources sector. On 29-October-2018, Vedanta’s 50.1% owned subsidiary <a href="https://www.smartkarma.com/entities/514" target="_blank" data-smartkarma-citation="entities:514:1">Vedanta Ltd (VEDL IN)</a> (VL) announced its Q2 2018-19 results. Revenues stood at INR227.05bn, up 5% compared to Q2 2017-18. Average gross oil &amp; gas production also increased by 3% compared to Q2 2017-18, reaching 186kboe/d in Q2 2018-19. Margins were lower primarily due to higher commodity costs during the quarter.
On 05-July-2018, Moody’s stated that the delisting would not have a material impact on the credit rating of Vedanta. The same view has been reiterated for VL by CRISIL during July-2018. We agree with Moody’s view that unless there is a significant change of policy from Volcan, the ownership should not make a difference to the company. Delisting the stock from the LSE is a good move in our view, especially since the stock had fallen over 23% in the five weeks since the Tamil Nadu incident occurred in May.
We are of the opinion that the privatization will provide more incentive for Mr. Agarwal to boost Vedanta’s cashflow to service payments on the VEDLN complex and improve overall operating efficiency of the company. The privatization will be able to preserve the value of the company’s equity amid on-going protests, in our view. This comes in exchange of declining transparency and the inability to raise equity in the market. But we have followed Vedanta for a while and the fact that the bonds remain listed tells us our access to management remains intact. Also, we do not believe Vedanta needs to raise equity at this juncture and Vedanta can always get relisted down the road.
Despite the external turbulence, the VEDLN complex holds firm in the market as it continues to offer attractive yields. We reiterate our OVERWEIGHT recommendation on the VEDLN complex. The complex were also undervalued, in our view, as the bonds traded over 200bps over Indian quasi-sovereign peers versus the fair spread of 175bps.

Vedanta Resources (VED LN) (Vedanta) was delisted from the London Stock Exchange (LSE) on 01-October-2018. This came on the back of Volcan Investments Ltd, controlled by Executive Chairman Anil Agarwal, successfully buying out the company’s shares in September. The privatization was more noticed by the market since it happened after a series of protests against the death of 13 people at Vedanta’s site in Tamil Nadu, India in May 2018. Between 01-October-2018 and 12-November-2018, the price of VEDLN 24s has dipped slightly from USD93.97 (ask) to USD91.84 (ask). This can be attributed to the delisting but does not imply a long-term change in prospects in our view as the company retains a robust business model.
Despite the delisting, the company remains in a strong position in the Indian natural resources sector. On 29-October-2018, Vedanta’s 50.1% owned subsidiary Vedanta Ltd (VEDL IN) (VL) announced its Q2 2018-19 results. Revenues stood at INR227.05bn, up 5% compared to Q2 2017-18. Average gross oil &amp; gas production also increased by 3% compared to Q2 2017-18, reaching 186kboe/d in Q2 2018-19. Margins were lower primarily due to higher commodity costs during the quarter.
On 05-July-2018, Moody’s stated that the delisting would not have a material impact on the credit rating of Vedanta. The same view has been reiterated for VL by CRISIL during July-2018. We agree with Moody’s view that unless there is a significant change of policy from Volcan, the ownership should not make a difference to the company. Delisting the stock from the LSE is a good move in our view, especially since the stock had fallen over 23% in the five weeks since the Tamil Nadu incident occurred in May.
We are of the opinion that the privatization will provide more incentive for Mr. Agarwal to boost Vedanta’s cashflow to service payments on the VEDLN complex and improve overall operating efficiency of the company. The privatization will be able to preserve the value of the company’s equity amid on-going protests, in our view. This comes in exchange of declining transparency and the inability to raise equity in the market. But we have followed Vedanta for a while and the fact that the bonds remain listed tells us our access to management remains intact. Also, we do not believe Vedanta needs to raise equity at this juncture and Vedanta can always get relisted down the road.
Despite the external turbulence, the VEDLN complex holds firm in the market as it continues to offer attractive yields. We reiterate our OVERWEIGHT recommendation on the VEDLN complex. The complex were also undervalued, in our view, as the bonds traded over 200bps over Indian quasi-sovereign peers versus the fair spread of 175bps.

Vedanta Resources PLC: Delisted Yet Uplifted