October 11, 2013 / 3:09 PM / 4 years ago

RLPC-Vedanta faces low demand for $1.2 billion offshore loan

5 Min Read

* Lenders cautious on offshore loans for Indian firms

* Demand low for Vedanta's $1.2 billion loan

* Reliance, Larsen & Toubro also see slow response to loans

By Tessa Walsh and Prakash Chakravarti

LONDON, Oct 11 (Reuters) - Indian mining and energy conglomerate Vedanta Resources Plc is struggling to attract commitments for a $1.2 billion five-year term loan as international banks prove less willing to lend to top Indian companies, banking sources said.

Nearly $7 billion of Indian corporate loans are in the market, according to Thomson Reuters LPC data, after India's call to domestic banks to boost US dollar reserves in September prompted an offshore borrowing rush.

Most of the loans are for top private sector companies, but India's macroeconomic problems have taken a toll on sentiment among retail bank investors.

Vedanta's shares were under pressure this week, after Morgan Stanley analysts downgraded the company's stock rating and warned that its Zambian copper assets were overvalued.

The London-listed miner is facing a weak response on a $1.2 billion, five-year term loan A which refinances a $2.97 billion acquisition loan that backed Vedanta's acquisition of a 40 percent stake in Cairn India in 2011.

Low demand for the loan could leave its lead banks - Bank of America Merrill Lynch, Barclays, Citigroup, JP Morgan, RBS and Standard Chartered - overexposed and forced to sell the loan at a loss in the secondary market, bankers said.

The loan has attracted two commitments in senior syndication and three commitments in retail syndication so far, the bankers added.

Vedanta is also seeking to raise another $600 million loan to refinance a bond which comes due in January next year.

The $1.2 billion loan was originally part of a bigger $2.5 billion financing which also included a $1.35 billion bridge loan to a bond issue that was repaid in mid May.

Vedanta originally wanted to raise a bigger $3.5 billion deal but reduced it to $2.5 billion in April after negative investor feedback on a proposed term loan B.

Structure, Pricing Predate Crisis

Vedanta's $1.2 billion loan was structured and priced before the rupee came under pressure in August after fears for the country's ailing economy spooked the markets.

Other loans for Indian companies are also receiving lukewarm responses as participant banks scale back lending to India. Taiwanese banks, which are some of Asia's largest lenders, are less willing to lend to Indian credits.

Reliance Industries, India's fourth biggest company by market value, has received one response in the general syndication of a $1.75 billion dual-tranche loan which was launched in early September.

A $370 million, five-year loan for technology, engineering, construction and manufacturing firm Larsen & Toubro, one of India's largest private sector companies, also launched general syndication in September but has attracted no banks to date.

Demand for Vedanta's loan has been low despite offering the richest pricing in the Indian offshore loan market. The deal has an interest margin of 275 basis points (bps) and all in pricing of 303.57bps.

"When negativity about India grips market participants, Vedanta is more affected than other companies," said one senior loan banker. "The current deal is a close reflection of true India risk."

Reliance Industries' deal pays top-level all in pricing of 170bps and 186bps for five and six-year money, while Larsen & Toubro's loan pays top-level all in pricing of 154bps.

The weak response to Vedanta's deal suggests that pricing may have to rise further to overcome investors' perception of increased risk in India.

Moody's said on September 12 that higher funding costs for Indian companies will put pressure on margins, particularly for companies challenged by slower growth prospects.

The ratings agency expects rates on rupee and foreign currency borrowing to rise.

Vedanta, which is controlled by former scrap metal dealer and Indian billionaire Anil Agarwal, is facing rising regulatory risks on the metals and mining industry in India including iron ore mining, bauxite mining and alumina processing, according to a Fitch report. (Editing by Chris Mangham)

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