Vedanta Resources is looking to refinance its $3 billion Cairn India acquisition. The mining major has decided to turn to the cheaper US loan market to extend the maturity of the debt.
The London Stock Exchange-listed diversified group has hired Standard Chartered, Bank of America Merrill Lynch, and the Royal Bank of Scotland Group to arrange the refinancing, according to people close to the development, who requested anonymity.
What is term loan
While the company is to raise $1 billion from banks in a five-year term loan, it will source the rest of the syndicated portion from the United States’ B-term loan market.
A term loan is an instalment loan, such as a loan one would use to buy a car. An institutional term loan (B-term), like the one Vedanta is going for, is a term loan facility with a portion carved out for non-bank, institutional investors in the US market.
Asked about the refinancing, senior executives declined comment. An official spokesperson said, “As and when we have any plan, we will notify as a listed company.'' Pankaj Karna, Managing Director at Maple Capital Advisors, said given the better liquidity on the debt market, debt is on the rise as compared to other forms of capital.
“Investors and fund managers are exploring the cheaper US loan market, given its flexible terms and low rates. These loans have become more common as they have longer maturities and repayment schedules. If Vedanta were to refinance, it would reduce its debt maturities,'' Karna said.
He added that many Indian companies were keen to take advantage of the low global interest rates to raise funds for refinancing, as compared to the domestic 10 per cent to 14 per cent rates.
Last year, Vedanta said it would combine Sterlite Industries and Sesa Goa to reduce liabilities. The company has $17 billion as debt, considered the highest by a metal company operating in India.