Vedanta’s dividend payouts to parent concern lenders
MUMBAI, NEW DELHI : Banks have turned cautious on their exposures to Vedanta Ltd, worried that sizeable dividend payouts to ease the parent’s debt burden might stress the balance sheet of the domestic entity to which they have loaned money, said two bankers close to the matter.
Bankers said a clutch of lenders have been discussing their stand on Vedanta and are uncomfortable with high dividends to help its London-based parent Vedanta Resources deleverage. They said they are closely watching their exposures but added that the company has been repaying loans on time.
“The perception of the company is not that great at the moment. Many of us are unwilling to take on fresh exposure to the company. While there is no repayment stress at the moment, we are worried because most of us have exposure to the Indian subsidiary," one of the two bankers cited above said, requesting anonymity.
Vedanta Resources Plc owns a 68.1% stake in Vedanta Ltd, which, in turn, owns 64.92% in Hindustan Zinc Ltd. The government owns a 29.54% stake in Hindustan Zinc. In FY23, Vedanta declared dividends of ₹37,730 crore, compared to ₹16,728 crore in the previous fiscal year. Additionally, its subsidiary, Hindustan Zinc, declared a dividend of ₹32,000 crore in FY23.
On 28 March, Crisil Ratings revised its outlook on Vedanta to negative from stable, citing “higher-than-expected financial leverage and lower financial flexibility with reducing the ratio of cash surplus to one-year maturities for fiscals 2023 and 2024". This, it said, was owing to increased cash outflow from Vedanta through dividends towards large maturing debt obligations at parent company Vedanta Resources.
Vedanta Ltd's consolidated gross and net debt stood at ₹66,182 crore and ₹45,260 crore, respectively, on 31 March. According to Crisil Ratings, lenders include State Bank of India, Axis Bank, Canara Bank, Punjab National Bank, Indian Bank, IDBI Bank, ICICI Bank, Bank of Baroda, and Union Bank of India, among others.
“I really do not understand why they are doing this, and as a lender, we are cautious on Vedanta, although lending decisions are up to individual banks. The Indian businesses are strong cash-generating entities, and there should be no reason to stress them so much," said the second banker.
Vedanta's chief financial officer Sonal Shrivastava said concerns around the balance sheet are unfounded because the company is going through a difficult time because of sagging metal prices, but that is not expected to last.
She said as far as deleveraging of Vedanta Resources is concerned, there are various plans afoot that the parent entity will announce as soon as something is tied up.
“If you see the past track record as well, we have always met our commitments, and we are confident that we will do so," Shrivastava said over the phone. “Even if the current London Metal Exchange (prices) hold and if there is an upswing, that benefits [us]. Even if it holds, we see operations really improving going forward because all our investments have been put in either for capacity expansion or cost reduction."
An email sent to Vedanta's spokesperson remained unanswered.
The company has also been trying to enter semiconductor manufacturing, but initial plans were jolted when Taiwanese electronics manufacturer Foxconn (Hon Hai Precision Industry Co. Ltd) pulled out of a 60:40 (majority owned by Vedanta) joint venture on 10 July. Two days later, Vedanta chairman Anil Agarwal announced at the annual general meeting that the company has partners for entering the semiconductor sector and is awaiting approvals from the government.
Mint reported on 19 July that Vedanta is looking to sell ESL Steel Ltd, formerly known as Electrosteel Steels Ltd, after acquiring it for ₹5,320 crore through a bankruptcy resolution process five years ago, citing two people familiar with the development. The report added that the mandate to liquidate assets could include the iron ore mines in Goa and Karnataka.