High debt levels invite trouble for companies. The Adani-Hindenburg issue is a recent example of this. Business Tycoon Gautam Adani’s conglomerate suffered a steep fall in its companies’ share price after the US-based short-seller published a report accusing the conglomerate of engaging in “brazen stock manipulation and accounting fraud scheme over the course of decades.”
Another well-known business magnate Anil Agarwal’s company Vedanta Ltd share price has been nose-diving since the past four sessions. It fell 8.84% on Tuesday to reach an intraday low of ₹ 261.95 apiece. The company’s shares were trading at ₹ 268.20 apiece, down 6.66% at 03:12 PM.
Market experts say that there is selling pressure on Vedanta’s share due to a roadblock in its acquisition of state-owned Hindustan Zinc and a sharp rise in the US dollar that led to the depreciation of Vedanta bond yield to ‘junk’ levels. They said that the company is facing a repayment crisis due to a fall in Vedanta’s bond yield in global markets.
About a year ago, Anil Agarwal was thinking about merging Vedanta Resources (Anil Agarwal’s once-London-listed company) with its cash-rich Mumbai-listed unit Vedanta Limited. However, that plan didn’t go anywhere.
Vedanta Resources managed to reduce its debt burden from almost $10 billion in March to a little under $ 8 billion. With the listed unit declaring a dividend last month, its parent and majority shareholder is “highly likely” to meet its obligations until September 2023, according to S&P Global Inc.
The trouble started when Agarwal tried to secure the finances for $1.5 billion in loan and bond repayments between September this year and January 2024 The next few weeks are crucial for fundraising. If the company fails, the issuer will issue a B- credit rating and the already deep-in-the-junk- bond category would come under pressure.
“Due to steep rise in US dollar rate in forex market, Vedanta bond yield has gone down,” said Anuj Gupta, Vice President — Research at IIFL Securities.
He added that as of 31st December 2022, around 99.99 percent of the promoters’ share in Vedanta had been pledged and hence is a big challenge for the company to generate additional money to meet its financial requirement arising in near future.
Anil Agarwal had started buying Hindustan Zinc from the Government two days ago on a privatization deal. The company has a cash pile of & 2 billion and it garners between $ 300 million and $ 600 million EBITDA per quarter. Vedanta Ltd currently owns 65% of the firm, decided in January to offload THL Zinc Ltd. Mauritius to Hindustan Zinc. The debt-laded Vedanta Resources owns Vedanta, and it would have taken care of the former’s liquidity needs.
The government, which still holds about 30% stake in Hindustan Zinc opposed the transaction. “We would urge the company to explore other cashless methods for acquisition of these assets,” the Indian government said. In addition, it threatened the company that it would explore legal avenues if Hindustan Zinc still decided to go ahead with the purchase.
Written by Simran Bafna
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