Vedanta Resources has launched a $3.6 billion bond buyback, the first phase of its $5.4 billion refinancing plan. The offer is aimed at repurchasing existing bonds ahead of new issuance and refinancing bonds and loans, cutting costs and extending maturities, said people familiar with the matter.
However, the transaction is expected to come with a substantial upfront expense as Vedanta may have to pay $250-300 million to pay bondholders to tender their holdings, as the bonds are currently trading above par value. Investors sitting on capital gains are unlikely to sell their securities back to the company without receiving a premium.
"The company will incur a meaningful tender premium, but the savings from reducing borrowing costs by nearly 300 basis points and extending maturities should more than offset that over time," said one of the persons, who did not wish to be identified.
The refinancing comes after a sharp improvement in Vedanta's credit profile following a ratings upgrade, a rally in commodity prices and progress on its demerger plans. While much of Vedanta's debt was originally raised at coupon rates of 9-10%, its bonds are now trading at yields of around 7%, creating an opportunity to refinance at significantly lower costs.
The initial tender relates only to the bond portion of the debt stack, totalling about $3.6 billion, which will end on June 23. Bank loans amounting to roughly $1.8 billion can be prepaid directly and do not require a tender process. Vedanta has been meeting investors in London, Boston and New York this week to gauge demand for a potential multi-tranche issuance across five-, seven- and ten-year maturities. The Anil Agarwal-led group began the roadshow on Wednesday. The company will subsequently issue new bonds to refinance the debt of $3.6 billion, while separately repaying or refinancing about $1.8 billion of loans.
ET had first reported on May 22 that Vedanta was evaluating options to refinance its entire debt stack.
Bankers expect the ongoing investor meetings and tender process to determine the final size and structure of the refinancing package. The transaction is being led by a large syndicate of international banks including Citigroup, Barclays, Deutsche Bank, First Abu Dhabi Bank, JPMorgan, Mashreq, SMBC and Standard Chartered.
