Vedanta shares tumble 8% amid block deal; GQG likely buyer

Shares of Vedanta witnessed sharp selling on Thursday, with the share price of the mining major falling over 8% amid block deals. In the first two hours of trade, nearly 9.3 crore shares changed hands over the counter compared to the two-week average volume of 4.98 lakh stocks. While the buyers and sellers were not known immediately, it was reported that its parent, Vedanta Resources Ltd (VRL), which currently holds 63.71% stake, was looking to sell a stake worth $1 billion in the company to Rajiv Jain-led investment firm GQG Partners.

Snapping two sessions gaining streak, Vedanta shares declined 8.3% to hit a low of ₹255.90 on the BSE, paring opening gains. Early today, the stock opened higher at ₹284.20 against the previous closing price of ₹279.20 and rose as much as 3% to ₹287.55 in early trade. The counter fell 11% from the day’s high level to hit a low of ₹255.90 amid a surge in selling activities.

With a market capitalisation of ₹1.02 lakh crore, Vedanta shares were trading over 13% lower than its 52-week high of ₹317.90 touched on February 17. 2023. The shares of metal and mining company hit its 52-week low of ₹207.85 on September 28, 2023.

The report of the stake sale by Vedanta Resources (VRL) came at a time when the London Stock Exchange-listed miner is facing the daunting task of repaying debt of $6.4 billion, including a $4.5 billion payment due by fiscal 2025. In FY23, VRL serviced its debt through refinancing and dividends receipts from its Indian subsidiary. Vedanta paid a dividend of ₹41,100 crore (including dividend by VDL’s subsidiary, Hindustan Zinc) against the consolidated dividend of ₹19,300 crore in FY22. Besides, VRL refinanced $1.3 billion of maturities from banks, which, along with dividends receipts, supported the debt servicing in FY23.

Last month, India Ratings (Ind-Ra) downgraded Vedanta’s debt facilities to ‘IND A+’ from ‘IND AA-’, while revising the rating watch to ‘Rating Watch with Developing Implications’ from ‘Rating Watch with Negative Implications’. The downgrade reflects Ind-Ra’s expectation of an impairment in Vedanta’s financial flexibility on account of reduced access to domestic and international capital markets (accounting for 20%-40% of borrowing since FY20) in the near-to-medium term, the brokerage said in its report.

Although, Ind-Ra believes the lower debt maturity of $1,295 million (including intercorporate loans (ICL) and excluding interest) at Vedanta Resources (VRL) in FY25, $946 million in FY26 and $1,426 million in FY27 due to the completion of liability management (LM) exercise will result in lower liquidity pressure, but VRL’s interest and principal repayments will mainly be serviced through dividends, and management and brand fee received from its Indian unit.

Further, the monetisation of the iron and steel assets at Vedanta, and the ability to raise funds through stake sale by its parent could reduce the need for significantly large annual dividend payouts by VDL over the near-to-medium term, the report notes.

However, the agency says VRL would continue to depend on Vedanta’s cash flows for repayment of the upcoming debt maturities. It believes any lower-than-expected cash accrual from a moderation in commodity prices, could result in a higher consolidated balance sheet debt and will remain a key monitorable.

In November last year, Crisil had downgraded the long-term bank facilities and debt instruments of Vedanta amid rising concerns about financial flexibility of the billionaire Anil Agarwal-led firm, which had already witnessed a reduction in liquidity since last fiscal. The rating also factored in the recent plan to demerge its businesses into separate listed standalone entities as well as the impending debt refinancing risk at the parent company.

Besides, S&P Global Ratings and Moody's Investors Services downgraded Vedanta Resources' ratings in the recent past. S&P Global downgraded VRL to "CCC" from "B-" on potential bond extensions and also placed it under ‘credit watch’. A CCC rating indicates higher vulnerability in meeting its financial commitments. While Moody's cut VRL’s corporate family rating (CFR) from ‘Caa1’ to ‘Caa2’, citing elevated risks of debt restructuring.

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