Vedanta bond volatility rises after consent plea

Indian commodity giant Vedanta Resources last week sought permission to add to its borrowings amid a rally in metals and oil, but a volatile reaction in its bonds shows potential investor angst.

Vedanta is requesting investors’ consent to loosen the covenants on its 13.875% 2024 and 8.95% 2025 bonds, in order to add debt to either refinance existing notes or acquire shares, a person familiar with the matter said July 7.

The bonds since fell to the lowest in almost three months. The company’s 2022 notes, on the other hand, have risen because the additional debt could help it refinance those securities.

Bloomberg

The consent solicitation was a negative surprise, coming just a few months after the 2024 and 2025 bonds were issued, Nomura said in a research note.

The fair consent fee should be closer to 3 cents for 2024s, and 3.5 cents for 2025s compared to the quarter cent offered by Vedanta, the bank said.

Robust commodity prices are creating a window for the company to borrow more. S&P Global Ratings in June upgraded its forecasts for oil, zinc and aluminum, which contribute to Vedanta’s earnings. It expects the firm’s debt servicing capacity to improve, according to a report in May.

The moves in Vedanta’s bond compare with a decline this month in India corporate dollar bond rates. Average yields have dropped to 4.26% as of Wednesday, compared with 4.33% as the start of July, according to a Bloomberg Barclays index. In the past week, they’re little changed.

Primary Market — Slow Week
The onshore rupee bond market saw a second straight slow week for issuance with weekly sales dropping to the lowest in a month, although shadow banks are actively borrowing.

Only one firm, Hero Fincorp, sold domestic bonds this week, raising 500 million rupees. Bond deals worth as much as 9.83 billion rupees are scheduled to close over the rest of the week. That compares with about 29 billion rupees sold last week.

In the offshore market, HDFC Bank is considering its first riskier offering that would count toward its equity capital under Basel III rules.

Secondary Market — Onshore Yields Moderate
Yields on rupee-denominated corporate debt showed signs of moderating after four weeks of increases.

The average yield on top-rated five-year corporate notes fell to 6.06% as of Wednesday, from 6.14% a week earlier.

Bloomberg

Credit Rating — Sovereign Rating Affirmed
S&P affirmed India’s long-term foreign currency debt rating at BBB-, based on the agency’s expectations of improving prospects of an economic recovery from the contraction caused by the pandemic in fiscal 2021.

Distressed Debt — Bad Bank Formed
The country took the first step toward setting up its proposed bad bank, when it officially registered the National Asset Reconstruction Company, according to a filing to the government’s Registrar of Companies.

India’s Supreme Court adjourned a keenly watched hearing on Amazon.com Inc.’s petition seeking to halt Future Group’s proposed $3.4 billion asset sale.

The court will next hear the case on July 20, which would be after an ongoing hearing involving the same parties at an arbitration tribunal in Singapore.