HZL Dividend to Ease Refinancing Pressure on Vedanta: Moody’s

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Vedanta

New Delhi: Vedanta Resources is looking to ease its refinancing pressure through a $982-million dividend from Hindustan Zinc Ltd (HZL), which will cover more than half of the metals and mining conglomerate’s debt maturing this fiscal year, Moody’s Investor Service said on Friday.

HZL’s announcement of a special dividend will stave off some of the refinancing pressure with respect to the company’s debt maturities in the fiscal year ending March 31, 2017, the rating agency said in a statement.

Last month, HZL had declared a special golden jubilee dividend of 1,200 per cent or Rs 24 per share share, entailing an outflow of Rs 12,205 crore (about $1.8 billion).

Moody’s said Vedanta’s 62.9 per cent-owned subsidiary Vedanta Ltd will receive Rs 6,580 crore ($982 million) of dividends for its shareholding in HZL.

“The dividends of $982 million will cover over a third of the group’s debt maturities in fiscal 2017 or almost 52 per cent of the debt due in the April-July 2016 period and partly alleviate near-term liquidity risk,” the rating agency said.

The golden jubilee dividend by HZL is in addition to the interim dividend of Rs 1.9 per share and special interim dividend of Rs 1.9 a share that HZL paid to Vedanta in October 2015, allowing Vedanta Ltd access to HZL’s large cash balances in excess of $5.3 billion, it noted.

Vedanta has large debt maturities of $2.67 billion for fiscal 2017, comprising $1.50 billion at the holding firm and the remaining $1.17 billion at Vedanta Ltd and other subsidiaries, it added.

Of the $2.67 billion, $1.9 billion is due in April-July 2016 and the balance of $770 million due in the remainder of the fiscal year,

“Weaker earning and the resultant rising leverage-against the backdrop of a severe fall in commodity prices globally and rising refinancing risk led to a three-notch downgrade of Vedanta’s issuer and senior unsecured ratings on 7 March 2016,” Moody’s said.

Moody’s noted that Vedanta was making progress on refinancing and points out that the large dividends from HZL will help lower Vedanta’s refinancing risk.

Vedanta will meet the rest of its fiscal 2017 debt maturities through a combination of term loans, working capital loans and the stretching of working capital.

Moody’s expects that Vedanta will repay the inter-company receivable to provide the holding company with the liquidity it needs to meet its debt repayments.

“However, the firm still faces material refinancing risk in fiscal 2018 and fiscal 2019 in the order of $2.7 billion and $4.3 billion, respectively,” it said.

While large dividends from HZL is a credit positive, Vedanta’s ratings and outlook are currently unaffected by the announcement of the special golden jubilee dividend, Moody’s added.