The loan from Vedanta Limited’s (VDL) subsidiary Cairn India Holdings (CIHL) would now have repayment on December 31, 2024, with an interest of 17%, up from 7%, a move that would help repay outsiders ahead of group companies.
VDL’s subsidiary, CIHL, had lent $956 million to Twin Star Holding, a related party, in FY21 at 7%.
As of April 1 this year, the outstanding loan balance was $449 million and had to be repaid by December. This has been extended to December 31, 2024, with interest payable half-yearly.
The management had clarified in 2020 that no inter-company loans from VDL to VRL would be used to meet debt obligations after a few VDL equity investors including UK-based hedge fund Kyma Capital raised concerns over the use of Cairn International to borrow $956 million at 7% during a delisting attempt.
By extending inter-company loans, VRL can meet external debt repayments, including a $1 billion bond due in January 2024. In FY24, VRL had a total debt repayment of $4.2 billion, of which $2 billion was already paid in the first quarter. The remaining $2.2 billion includes principal requirements and interest or intercompany loans, including a $1 billion 13.875% bond due January 2024, which is trading at 88/89 and yielding at 41%. As reported, S&P Global Ratings has warned VRL of a rating action in the absence of a credible refinancing plan by the end of July to maintain the current rating, which is at B-/Stable.Also, in what will help VRL leverage brand fee receivables and meet external debt repayments, VDL’s chief financial officer, Sonal Shrivastava, informed investors and analysts on Friday that the brand fee’s revised rate will remain fixed for six years but may be reviewed periodically. From this year, the brand fee from VDL is fixed at 3% of annual revenue for six years.
“This extension helps VRL address external debt requirements upfront, including a $1 billion bond due in January 2024,” said a debt capital market source. “VRL now has the option to borrow $2.4 billion upfront using brand fee receivables to repay all debt obligations. The six-year brand fee tenor offers additional borrowing potential, with a total of $2.4 billion over the period, making it possible to address debt requirements upfront. Also, extending inter-corporate loan benefits other lenders as the company has cash available for meeting external debt repayments.”
This year, Hindustan Zinc paid a royalty of 1.7% of its annual revenue to VDL, which was then upstreamed to the UK holding company, VRL. The royalty helped VRL redeem existing bonds.
