London-based Vedanta Resources, the parent company of India’s Vedanta Ltd, is on the verge of a crucial $3.8 billion bond restructuring exercise. As of December 29, the company has garnered significant support, with 20% to 40% of investors reportedly favouring the proposal. However, the success of the restructuring depends on achieving more than two-thirds approval from each bond’s investors, with at least two-thirds of those votes in favour. The company’s move aims to manage its debt repayment cycle more effectively by extending the maturity of several outstanding corporate bonds.
Current Approval Status
For bonds maturing in January 2024 and August 2024, Vedanta has secured consent from 20% and 35% of investors, respectively. Additionally, the company has received approval from 41% and 25% of investors for bonds maturing in March 2025 and April 2026, respectively. The voting deadline is January 2, and a meeting with bondholders is scheduled for January 4.
Challenges and Last-Minute Dynamics
Some challenges persist despite assurances from approximately 80% of investors supporting the restructuring. Only about 3% of the votes logged until now have been against the proposal. Notably, an ad hoc group of bondholders previously advised against supporting the restructuring, seeking better terms from the company. However, the group needs substantial bonds, making it challenging to block the restructuring.
The Timing Challenge
One banking source noted that the crucial decision-making phase occurs within 48 hours. Unfortunately, the last 48 hours coincided with the New Year’s Eve period, potentially affecting the voting dynamics.
Key Terms of Restructuring
Vedanta Resources proposed a liability management exercise involving a partial upfront payment and a delay in the maturity of three bond series. The restructuring aims to reduce immediate debt and reorganize the repayment cycle. The company plans to extend the maturity of bonds due in January 2024, August 2024, and March 2025 by 29-52 months. Notably, no changes are proposed for bonds maturing in April 2026.
Financial Terms
The company plans an upfront payment of 53% for $1 billion bonds due in January, with the remainder maturing in January 2027. For bonds maturing in August 2024 and March 2025, upfront payments of 6% and 16% are proposed, with the balance payable in instalments between August 2027 and December 2028. Coupon rates for these bonds may increase from 6.125% and 8.95%, respectively, to 13.875%.
Consent Fees and Financing
Investors providing consent before December 27 will receive a 2% fee on the principal amount, while those agreeing after will get a 0.25% fee. To finance upfront payments and consent fees, Vedanta Resources secured $1.25 billion in term debt maturing in April 2026 from private credit lenders, including Cerberus Capital Management and Davidson Kempner Capital Management.
Summary
As the deadline approaches, Vedanta Resources navigates the complexities of bond restructuring, facing both support and resistance. The company’s proposed terms and backing from most investors indicate a favourable outcome. The final decision on January 4 will shed light on the resolution of Vedanta Resources’ efforts to reshape its debt profile and secure a more sustainable financial future.
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