Vedanta Limited (VEDL), through its subsidiary, ESL Steel (ESL), is to raise INR 2 billion (USD 223 million) by using 10 to 12 per cent non-convertible debentures. The raise must meet its funding obligations of Vedanta Resources Limited (VRL) of USD 206 million to Konkola Copper Mines (KCM) by the end of 2025. Though presented as a regular refinancing gimmick, calculations suggest otherwise — a collapse of the Group’s deleveraging strategy.
Image source: Vedanta Limited
Explore- Most accurate data to drive business decisions with 50+ reports across the value chain
ESL faces dire financial distress due to its inability to repay or service the debts. It is being utilised as a funding vehicle for raising and channelising the proceeds to meet the liquidity deadlines of VRL. Over the past 5 years, ESL has reported a negative free cash flow. Out of this, the EBIT margins have been negative or near-zero for the last 3 years. ESL is proving to be structurally unprofitable due to the mandatory mining payments and penalties.
The operations continue only because the court stayed action on Environmental Clearances and CTOs that have lapsed. Moreover, every year, there has been a Material Uncertainty Related to Going Concern warning on ESL accounts. For the purpose of ESL’s 3 MTPA hot metal expansion, VEDL’s most recent financial results presentation approved INR 1.02 billion (USD 113 million) capex, which remains unspent.
Earlier this year, VEDL raised INR 5 billion (USD 559 million) in NCDs at 8.9-9.45 per cent. Later, in September, VRL acquired only USD 500 million out of an attempt to raise USD 1 billion. Running out of high-funding options, the Group turns to the loss-making subsidiary, pursuing an even steeper, more expensive raise.
The situation renders misleading ideas as the proceeds from the lenders will be funnelled to clear the VEDL debts instead of financing ESL itself, the funds being redirected to VEDL or KCM through dividends or related party loans. Also, the raised money is not to be used for capex. Most importantly, the instant highlights that Indian banks and PSUs are no longer offering credit to VEDL.
Significantly, the fundraising proves contradictory to several VEDL-favouring analyses, such as that of Nuvama, claiming, “Vedanta’s focus on demerger, delivery and deleveraging (3Ds) is on course to pay off, supported by tailwinds of commodity prices. The likely favourable outcome by NCLT in December 2025 (demerger likely by Q4FY26-end), and removal of overhang (not buying JP Associates) are additional triggers”. The result on Crisil Ratings, too, showing that KCM had no major capex requirements, is also proving inaccurate.
Information credit: https://viceroyresearch.org/
Don't miss out- Buyers are looking for your products on our B2B platform
Responses
