Vedanta Ltd.’s stock dropped the most in almost three months, amid questions about the billionaire Anil Agarwal-backed mining company’s involvement in a “landmark” Indian semiconductor factory investment.
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Shares in the company fell as much as 8.7% on Friday, snapping six days of gains, after the Mumbai-listed firm said the manufacturing business would fall within the purview of family trust Volcan Investments Ltd. That raised questions after Agarwal tweeted on Sept. 13 saying Vedanta was making the 1.54 trillion rupee ($19.3 billion) investment.
Source: Bloomberg
“The rally in Vedanta shares happened following euphoric statements from the founders about their new line of business. But, this is not going to benefit the shareholders of Vedanta Ltd.,” said Kranthi Bathini, a strategist with WealthMills Securities Pvt. “This is resulting in selling pressure.”
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Vedanta Ltd. this week announced it had joined forces with Hon Hai Precision Industry Co., the assembler of most of the world’s iPhones, to build a chipmaking facility in Gujarat, the home state of India’s Prime Minister Narendra Modi.
The partners have little experience running large chip operations, but are betting on rising demand as everything from smartphones and cars to home appliances contain semiconductors.
News of the investment, which Agarwal termed “landmark,” also prompted questions about how it would impact its backers’ finances. While Vedanta Ltd. has an investment-grade rating, Moody’s classifies its parent as high-yield.
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Vedanta Ltd. is majority-held by Vedanta Resources Ltd. and provides its London-listed owner with a steady stream of dividends. The parent uses them to pay down debt. Agarwal’s family trust Volcan is the ultimate parent of both entities.
Reflecting worries about its payment abilities, the dollar bond of Vedanta Resources Ltd. due in August 2024 plunged to a more than two-year low of roughly 50 cents on the dollar on July 5, a level typically considered distressed. It has since recovered and was trading at 66 cents on the dollar on Friday.
“Vedanta Resources dollar bonds could come under pressure on rising capex and ambiguity around how it will affect funding needs and liquidity. It plans to commit an additional 250 billion rupees ($3.14 billion) to support its aluminum business and plans a $20 billion semiconductor joint venture.”
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– Mary Ellen Olson and Sheenu Gupta of Bloomberg Intelligence
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Vedanta Resources has more than $4 billion of debt maturing in the next four years, with the biggest chunk in 2024, the data show.
Any impact on credit “will depend on the details of the funding plans, which are yet to emerge,” said Neel Gopalakrishnan, an analyst at S&P Global. “Our belief is that the company will manage its investments prudently so as to not put debt servicing at Vedanta Resources at risk.”
