Vedanta Resources looking to rejig $5.5 bn holdco debt in one go

Mumbai: Anil Agarwal-led Vedanta Resources Ltd (VRL) has initiated talks with global banks on refinancing the holding company's debt of $5.25-5.5 billion through a mix of long-tenor bonds and amortisation of loans, said people aware of the matter. The group is seeking to better align repayments with dividend inflows from operating companies, they said.

Agarwal is looking to restructure the debt of his overseas holding company in one shot after streamlining the natural resources group by spinning off five separate entities from India-listed subsidiary Vedanta Ltd via a demerger.

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The London-based parent of Vedanta Ltd is looking to raise $3.5-3.7 billion through 10-year bonds and another $1.5-1.7 billion via loans with a five-year maturity, said the people cited. In recent weeks, VRL's management has held discussions with at least eight global lenders.

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These include Citi, JP Morgan, Mashreq Bank, First Abu Dhabi Bank, Sumitomo Mitsui Banking Corporation, Barclays, Standard Chartered and Deutsche Bank, they said..

Spokespersons of Barclays, JP Morgan, Citibank and Standard Chartered Bank declined to comment. First Abu Dhabi Bank could not be reached. Vedanta and the other lenders didn't respond to queries.

VRL had about $5.5 billion of holding company debt, including an inter-company loan of about $200 million, as of February. It needs to make annual debt repayments of $500-600 million over the next three fiscal years, with obligations rising to nearly $1.25 billion in FY30.

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The company has been servicing these through a mix of annual brand fees of around $350 million and dividends from Vedanta Ltd of $600-700 million annually, alongside refinancing initiatives and potential stake sales in listed operating companies.

However, following the demerger, a brand fee of around 3% of turnover will be payable by the spun-off companies until FY29 while that for the copper business has been reduced to 0.75%.

The group has in recent years faced pressure over large bullet repayments at the holding company level that often coincided with downturns in commodity cycles.

Big swings in commodity prices have resulted in volatile credit metrics for the group but a focus on backward integration in aluminium coupled with an uptick in pricing should shield the company's earnings from such volatility and result in a sustainable improvement in its credit profile, analysts said.

They estimate all listed group entities are likely to record 19–42% ebitda CAGR over FY26-28, except oil and gas. The company’s growth projects in aluminium, including bauxite and coal mines, though delayed, are likely to be completed in FY27.

“The idea is to match debt maturities with predictable cash flows at the holdco level,” said one of the executives cited. “In the past, whenever there were large lump sum repayments during weak commodity cycles, the company had to upstream higher dividends from operating entities, which the market reacted negatively to.”

The loans are expected to have an amortising structure with repayments spread over the tenure and an average maturity profile of about two-and-a-half to three years. The bonds, too, are likely to be amortised over a 10-year period, reducing refinancing pressure in any single year.

The loans will rank senior to the bonds in the capital structure and are expected to be repaid earlier, the people said.

Last week, in a ratings upgrade, analysts at S&P Global estimated VRL’s ebitda at $7 billion in FY27 and FY28. This, coupled with lower dividends, will increase the company's discretionary cash flow. As a result, adjusted debt will decline by $500 million in FY27 and $1 billion in FY28, as per their calculations.

“Higher earnings and debt reduction will keep the ratio of funds from operations (FFO) to debt well above 30% over the next 12-24 months,” they added.

The latest round of discussions follow several refinancing and liability management exercises undertaken by the company over the last few years to address near-term maturities and reassure investors over leverage at the parent company level. In a recent investor presentation, the company said its liquidity position had improved to $2.6 billion while net debt stood at $11.4 billion. The leverage ratio improved to 2x from 2.3x a year earlier.

The company also refinanced $550 million of high-cost debt during the first half of the last fiscal year, reducing average borrowing costs by 160 basis points year-on-year to about 10%. VRL said its average debt maturity profile has improved sharply from 1.3 years two years ago to almost 4.5 years at the end of December 2025.

“VRL's recent record of proactive refinancing, smoother debt maturities and lower borrowing costs at the holdco shows improved financial discipline,” said Fitch Ratings in a recent report. “We expect brand fees and opco dividends to cover $800 million-1 billion of annual holdco debt service in FY26-FY29.”

While it expects holdco debt to gradually reduce from $5.3 billion in February 2026, excluding the inter-company loan, it said management's FY27 target of $3 billion looks ambitious.

The bond market has been watching if the demerger process at VRL’s 56% subsidiary Vedanta Ltd will impact the holding company's access to cash flow from the five subsidiaries. The restructuring will create vertical business lines with different standalone credit profiles and hence different levels of funding access.

Vedanta Ltd expects Hindustan Zinc to anchor earnings growth underpinned by the 250 kilo tonne expansion at the Debari, Rajasthan, plant, said Indrajit Agarwal, materials analyst, CLSA. "The group has outlined cumulative capex of $8bn over the medium term, with a key focus on Zinc International and copper. But capital allocation and dividend policy will be key to watch given the high capex earmarked over the medium term and lower obligation to its parent Vedanta Resources.”