(Bloomberg) – Dollar bonds of Vedanta Resources Ltd. rose on an improving liquidity outlook after Vedanta Ltd. announced plans to sell its international zinc business to subsidiary Hindustan Zinc Ltd. for $2.98 billion, benefiting from Anil Dividend outflow from Agarwal’s cash cow.
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Prices on all outstanding Vedanta Resources bonds rose on Friday. The company’s notes due in April 2026 rose 7.8 cents to 77.6 cents on Friday, according to data compiled by Bloomberg. This is the largest increase since June 2020.
Hindustan Zinc, based in Rajasthan, India, said in a bourse filing on Thursday that it would buy the assets of THL Zinc Ltd. Mauritius from its parent company in stages over about 18 months, subject to regulatory approval. approve. THL’s businesses include Black Mountain Mining (Pty) Ltd. in South Africa and Skorpion Zinc (Pty) Ltd. in Namibia.
The deal is important for Vedanta’s billionaire owner Agarwal, who is looking to simplify the corporate structure of his commodities empire and cut debt at Vedanta Resources after a failed attempt to delist Vedanta Ltd. in 2020.
London-based Vedanta Resources has $4.7 billion in U.S. dollar bonds maturing in the next four years, including $900 million in notes due in the first half of 2023, according to data compiled by Bloomberg.
The move is a “sweetheart trick” for minority shareholders of Vedanta Resources and Vedanta Ltd., as the deal could help the unit’s cash flow upstream, yield benefits at a higher valuation and be structured to avoid long-term capital gains taxes, according to A note from Investec Capital Services Ltd. analysts including Ritesh Shah. Assuming the upstream cash will be used for payments, it will provide the necessary relief to Vedanta Resources’ cash flow, it said.
Shares of Vedanta Ltd. rose 3% in Mumbai on Friday, while Hindustan Zinc fell 9.9%.
The high cost of acquiring international zinc assets will reduce Hindustan Zinc’s cash reserves, according to brokerage Antique Stock Broking Ltd. The company’s total investments, as well as cash and cash equivalents, have decreased over the past few quarters to 164.82 billion rupees ($2.03 billion), as of end-December, an exchange filing showed.
One way Agarwal generates cash is by receiving dividend payments from Hindustan Zinc. The company on Thursday declared a third interim dividend of Rs 13 per share, totaling about Rs 5,500 crore. This is in addition to the Rs 15,400 crore already disbursed for the current financial year.
The payment to Vedanta of 2% of Hindustan Zinc’s consolidated revenue for the use of brand and strategic management services will also increase the liquidity of the parent company.
Hindustan Zinc also named Agarwal’s daughter Priya Agarwal Hebbar as chairman of the company, which reported third-quarter net income that fell short of analysts’ expectations. Vedanta owns about 65 percent of the miner, while the Indian government holds about 30 percent.
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