Vedanta Won't Sell Shares to Repay Debt in Cairn India Deal, Agarwal Says

Vedanta Resources Plc, the mining company that agreed to buy control of oil explorer Cairn India Ltd., said it won’t sell shares to repay the $6.5 billion of debt used to finance the deal.

Vedanta is borrowing the money for at least two years to take a stake of as much as 40 percent in Cairn India. Sesa Goa Ltd., an iron ore producer majority-owned by Vedanta, will pay cash for 20 percent. Vedanta’s earnings before interest, tax, depreciation and amortization will exceed $5.5 billion this year, helping it repay the debt, Chairman Anil Agarwal said.

“We are in a very comfortable position,” Agarwal, who founded the company and is the controlling investor, said yesterday in a Bloomberg Television interview at his home in London. “If necessary we can roll over and get a refinancing.”

Sesa Goa will make its open offer to Cairn investors from Oct. 11 to Oct. 30, Press Trust of India said on its website.

Vedanta, which mines copper and zinc and smelts aluminum, agreed to pay as much as $9.6 billion for the stakes in Cairn India to diversify into oil with the Mangala field in Rajasthan. London-based Vedanta also plans further expansion in oil and gas using Cairn India’s exploration expertise.

“I will allocate funds for them whatever their plans are, whether they go to India’s various places or go to Sri Lanka or go to Africa,” Agarwal said.

Shares Rise

Vedanta, whose Ebitda for the fiscal year through March rose 42 percent to $2.3 billion, extended stock gains in London today. The shares climbed 3.1 percent to 2,220 pence at the 4:30 p.m. close in London, after rising 4.9 percent yesterday. The stock tumbled 20 percent last week, when the acquisition was reported.

Credit-default swaps linked to Vedanta debt fell 13.8 basis points to 630, according to data provider CMA. Swaps are used to speculate on a company’s ability to repay debt and decline when perceptions of credit quality improve.

Rating services reduced ratings on Vedanta in the wake of the takeover agreement on concerns debt will soar and the company lacks experience in oil and gas.

Fitch Ratings cut Vedanta’s long-term issuer default rating to BB+, or junk, from the lowest investment grade of BBB-, today. Standard & Poor’s placed Vedanta’s BB corporate credit rating on CreditWatch with negative implications. Moody’s Investors Service also placed Vedanta’s Ba1 corporate family and Ba2 long-term senior unsecured ratings on review for possible downgrade.

Weaken Profile

“The rating review reflects Moody’s concern that this bold acquisition, in what will be a new business for the group and likely be majority debt-funded, will weaken Vedanta’s overall credit profile,” Alan Greene, a senior credit officer and lead analyst at Moody’s, said in a statement.

Vedanta plans to mine bauxite, a raw material used to make aluminum, in the Indian state of Orissa. A panel set up by the Environment Ministry said yesterday a permit to allow operations in the area should be rejected because the mine will endanger the livelihoods of local people. The ministry will consider the panel’s report and issue its decision on Aug. 20.

Agarwal said he expects to get permission to mine.

“It’s nice that the debate is there, but I think at the end it will be all right,” he said. “We will not move an inch of grass unless we have a full clearance.”

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

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