Billionaire’s Anglo American Bid Cheers Vedanta Bond Bulls

Bulls in bonds of metals firm Vedanta Resources Plc are betting that billionaire owner Anil Agarwal’s plan to buy a stake in Anglo American Plc will extend a rally that’s already doubled their money in the last year.

Vedanta’s 7.125 percent note due 2023 jumped 1.1 cent on the dollar to 102.4 cents, the sharpest increase in almost two months, according to data compiled by Bloomberg. The bonds were in distress at 49.7 cents at this time last year, before a rebound in commodities helped lift them.

Agarwal plans to buy as much as 2 billion pounds ($2.5 billion) of Anglo American shares in the market, according to a statement on Wednesday from Volcan Investments Ltd., a holding company owned by the Agarwal family. That would make him the second-largest shareholder. While Vedanta said in a separate statement that it’s not participating in the investment, the move fueled speculation that the firm could benefit.

“Agarwal would be a large shareholder and it’s not impossible that there might be some joint venture activity in the future,” said Rick Mattila, Hong Kong-based international head of market strategy at MUFG Securities Asia Ltd. A closer association with Anglo American “could also have a positive impact on Vedanta, with potential synergies and partnerships in the future,” he added.

London-listed Vedanta Resources is riding an upturn in commodity prices. Agarwal offered to merge part of his mining empire with Anglo American last year, only to be rebuffed. The tycoon said this time that he won’t make a takeover bid. The full stake would equate to about 13 percent of Anglo’s stock.

Improving Profile

Anglo American, a company founded by the storied Oppenheimer dynasty in South Africa, is one of the world’s top five mining groups, with key assets including giant copper mines in Chile and iron ore operations in Brazil.

Trung Nguyen, a Singapore-based senior credit analyst at Lucror Analytics, said that the planned purchase is “aggressive.” Vedanta may eventually have to “help out” if its chairman has difficulty servicing debt, according to Nguyen.

However, the company has demonstrated the ability to extract cash from its subsidiaries and has strong access to capital, he added.

“Given the recovery in the commodity prices, Vedanta credit profile is really, really improving,” said Nguyen. “It will make lenders comfortable to lend at this moment.”

Vedanta’s mining subsidiary, Vedanta Ltd., got the nod from shareholders in its oil unit Cairn India Ltd. last year to merge. The deal would give the mining unit access to Cairn’s cash pile.

Bloomberg News
March 16, 2016, 08:53:53 GMT

Reporting by Denise Wee; Editing by Andrew Monahan, and Ken McCallum