The Vedanta group of billionaire Anil Agarwal plans to raise up to $ 8 billion through a mix of debt and equity to secure the funds for the acquisition of Bharat Petroleum Corp. Ltd (BPCL), two people directly aware of the talks with investors and banks said.
London-based Vedanta Resources Plc has initiated talks with a group of banks to secure the funds, people said, seeking anonymity as the discussions are private.
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“Talks are currently underway to appoint a support bank for the purpose and discussions with JP Morgan are at an advanced stage,” said one of the two people.
Last month, the mining conglomerate showed a preliminary interest in buying the government’s 53% stake in BPCL. The sale, part of India’s asset sales program, is expected to appeal to the government ₹45,000 crore and aims to help it compensate for the loss of revenue caused by covid-related disruptions and to secure funding for additional expenses to revive the economy.
Both Vedanta and JP Morgan declined to comment.
The Vedanta group’s interest in India’s second largest fuel retailer stems from synergies with its existing oil and gas businesses (formerly Cairn India), which account for around a quarter of India’s annual crude oil production.
“Vedanta’s EoI (Expression of Interest) for BPCL is evaluating potential synergies with our existing oil and gas business. EoI is in a preliminary and exploratory stage, “the company said.
Analysts, however, questioned the group’s ability to raise the entire funding on its own given its precarious finances. While BPCL’s dividend payments could cover the cost of debt of any acquisition, “the question we have is how Vedanta Ltd (an Indian unit of Vedanta Resources) would secure financing, given the leverage concerns of Vedanta and the parent company, “JP Morgan said in a November report.
Buying a 75% stake in BPCL (53% from the government and 22% via an open offer) would cost Vedanta ₹64,200-97,600 crore depending on the price ( ₹395 to 600 per share), the ratio added.
“Vedanta is aware of the challenges it faces in fundraising and is therefore keen to integrate equity partners to jointly acquire BPCL,” said the second person quoted above. “He also started discussions with several equity funds to make a joint offer,” added the second person. The names of the PE funds could not be ascertained immediately.
The Vedanta Group faces a daunting task in meeting its maturing debt obligations in the coming quarters, and investors have expressed concerns about the group’s ability to successfully repay bondholders.
Bloomberg reported on Dec. 10 that Vedanta Resources secured much needed funds by selling $ 1 billion worth of notes at one of the highest yields for a dollar bond in Asia this year. On Wednesday, it priced the January 2024 bond with a yield of 13.875%. Vedanta Resources plans to use the money to fund a repurchase offer for $ 670 million of notes maturing in June 2021.
Strains increased at the company after its attempt to remove the Vedanta Ltd Indian unit failed in October. The scheduled cancellation would have allowed the parent to have easier access to cash.
Moody’s Investors Service lowered Vedanta Resources’s credit rating further into junk territory earlier this month, the Bloomberg report said.