Glencore International AG, one of the world’s largest natural resource companies, has lent $250 million to Vedanta Resources (VRL), the holding company of the Vedanta group. The loan was pledged against a 4.4 per cent stake in Vedanta Ltd, the India-listed subsidiary of VRL.
Set up in 1974, the Switzerland-headquartered Glencore is a mining and natural resources rival to billionaire Anil Agarwal-owned Vedanta group in several geographies. VRL will use the proceeds to repay bonds due on Wednesday.
Calling Glencore’s debt investment as “eleventh-hour reprieve”, analysts say the group will be able to tide over the ongoing crisis. “We remain aware of refinancing risk on VRL’s $4.1-billion debts due in FY24, for which VRL will likely have to rely heavily on external fundraising for a $2.1-billion refinancing and an additional $950 million to plug a funding gap. At this point, we would still lean towards VRL being successful at tying up its $2.1-billion fundraising, given VRL’s recent debt reductions, fresh fundraising efforts and that we think various alternative funding channels remain open for VRL like share pledges and some dividend upstreaming,” said Lakshmanan, a senior analyst with CreditSights.
Glencore declined to requests for comment.
A Mumbai-based analyst said the Glencore debt exposure was “strategic” and may be a precursor to the European company buying a stake in India assets. “It all depends on how the group manages to raise funds to repay old debt,” the analyst said.
According to the agreement, VRL is required to provide “certain action” on behalf of its subsidiaries, Westglobe, Richter Holding and Finsider International Company (FICL) (third-party obligors).
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VRL, Westglobe, Richter and FICL are members of the promoter group of Vedanta Ltd. A charge has been created on all the issued shares of FICL by Westglobe and Richter in favour of Glencore.
After this, certain restrictions have been placed on promoter entities to sell, transfer or dispose of any shares held by them in FICL.
There will restrictions on FICL to sell, transfer or dispose of shares held by it in Vedanta, it said. A share charge was executed on May 25 between Westglobe, Richter and Glencore and a pledge was created on all shares held by Westglobe and Richter in FICL. Besides, a non-disposal undertaking (NDU) was executed on May 25 among FICL, Glencore and Catalyst Trusteeship, an onshore NDU agent. FICL has provided an NDU on 4.4 per cent shares, worth Rs 4,675 crore, of Vedanta that it holds, it said.
Vedanta’s market valuation was Rs 1.06 trillion as on Tuesday. On May 25, Vedanta said it had pledged its almost entire 64.5 per cent stake in Hindustan Zinc to raise funds. A day later, Oaktree — a lender to VRL — informed the stock exchanges that Vedanta group cannot create a new charge on its stake in Vedanta Ltd. A part of the Vedanta stake was released by Oaktree which was immediately pledged with Glencore by VRL.