Vedanta to raise $470 million from Power Finance Corp for energy business

The Anil Agarwal-led company has secured a rupee term loan facility from the state-run lender for at least 3,918 crore, which can go up to 4,000 crore, two people aware of the development said. The 11-year loan is part of the group’s renewed focus on growing its energy portfolio in India, amid competition from large domestic rivals.

“This financial closure will enable Vedanta to expedite the completion of its power projects,” one of the two people cited above said, adding that Vedanta will use the funds primarily to expand capacity at its two power plants in Chhattisgarh and Andhra Pradesh.

The London-headquartered mining and energy group plans to increase the operating capacity of its power business in India to 4.8GW by FY27, from the existing 2.58 GW. Towards this, Vedanta has acquired two plants—Meenakshi Energy Ltd in Andhra Pradesh with a capacity of 1GW, and Athena Power in Chhattisgarh with a capacity of 1.2GW.

PFC is India’s largest power-sector lender and typically extends financing to companies that own promising power projects and manufacture power-sector equipment.

Vedanta has regularly raised capital from international banks (two of its largest lenders are Barclays and JPMorgan) or by selling equity in group firms. Due to concerns over its ability to repay parent-level (Vedanta Resources) debts over the past year, its credit ratings on long-term loans have been revised, and it has been struggling to raise fresh capital.

Vedanta group’s borrowings rose by 22% year-on-year to 75,227 crore at the end of December 2023. Last week, it said it would raise 2,500 crore by issuing non-convertible debentures (NCDs) through private placements. 

The company’s cash and cash equivalents in the third quarter was down to 12,734 crore from 23,474 crore in a year ago.

Vedanta has sharply increased its focus on energy generation over the past two years. Last month, Serentica Renewables, a renewable power company promoted by Agarwal’s Sterlite Power, said it would invest 25,000 crore to expand its projects portfolio to about 4 GW by June 2025. Sterlite will first commission 600 MW of renewable energy projects and add 500 MW of capacity in each subsequent quarter.

In September, Serentica received 2,600 crore from PFC for its hybrid renewable energy projects in Karnataka, which are being built to meet captive energy needs of Vedanta group companies.

The latest financing follows Vedanta group’s takeover of Meenakshi Energy on 28 December via an NCLT-driven insolvency process. Meenakshi Energy has a coal-based power plant at Nellore, Andhra Pradesh, which Vedanta will use to supply power to merchants.

In August 2022, the London-headquartered mining giant acquired Athena Chhattisgarh Power Ltd for 565 crore to meet its captive power requirements. Athena Chhattisgarh currently has a 1.2GW coal-based power plant at Jhanjgir-Champa district.

The acquisition will fulfil the power requirement of Vedanta’s aluminium business, and through vertical integration, may result in a cost advantage in terms of power consumption. 

Athena’s plant, built close to Mahanadi river, is about 80 km from the Balco aluminium factory, and about 180 km from the industrial hub of Jharsuguda, and is connected by national highways and railway stations.

Vedanta’s power strategy is in focus amid the group’s ongoing demerger. While the demerger proposal awaits creditors’ approval, the company’s shares have jumped over 33% in the past three months, hitting 52-week highs in a few sessions this month.

“The development demonstrates Vedanta’s capital-raising ability from diverse sources to fuel the growth of its portfolio and to build world-class assets. [The stock] has seen buying activity from domestic and international funds,” said the person mentioned earlier.

The company recently announced the commissioning of a new 1.5 metric tonnes per annum expansion at its alumina refinery in Lanjigarh, Odisha. This additional capacity will take the overall nameplate capacity at the Lanjigarh refinery from 2 mtpa to 5 mtpa. Vedanta Sesa Goa also commenced mining operations at the Bicholim mineral block, adding to its growth plans.

In September, Vedanta announced the demerger of its metals, power, aluminium, and oil and gas businesses to unlock value. The exercise will create six independent verticals—Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Ltd.

The two people said the demerger was on track and that the demerged entities would be allocated debt in proportion to their assets.

PFC, India’s largest pure-power play lender, had a loan book of 4.32 trillion as of March 2023, of which 3.2 trillion was lent to state power companies and 73,000 crore to private ones. Of the total disbursals, 78% was for the conventional sector and almost 10% for renewables.

In October, PFC announced it had sanctioned 15,000 crore in loans for various projects and would start funding airport projects. Last July, it said it had struck loan agreements worth over 2.37 trillion with 20 companies to fund their energy transition. These firms included Adani Group, Greenco, ReNew Power, Continuum, Avaada, JBM Auto, Rajasthan Renewable Energy, and Megha Engineering and Infrastructure.

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