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

“This financial closure will enable Vedanta to expedite the completion of its power projects,” said one of the people. Vedanta will primarily use the funds for two of its key power plants in Chhattisgarh and Andhra Pradesh. The London-headquartered group plans to increase the operating capacity of its power business to 4.8GW by FY27, and acquired the two plants – Meenakshi Energy Ltd in Andhra Pradesh with a capacity of 1GW, and Athena Power in Chhattisgarh with a capacity of 1.2GW – to achieve this.

A PFC spokesperson declined to comment while an email sent to Vedanta did not elicit an immediate response. PFC is India’s largest power-sector lender and typically extends financing to corporations that own promising power projects and manufacture power-sector equipment.

Vedanta typically raises 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, the group’s 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) on a private placement basis. 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.

But the PFC funding indicates that Vedanta may be winning back the trust of large domestic lenders.

Vedanta has sharply increased its focus on the energy generation business 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 Ltd 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 for Vedanta. Athena’s plant, built close to Mahanadi river, is about 80 km from BALCO and about 180 km from 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 is awaiting creditors’ approval, with a diverse set of investors and lenders starting to agree to finance Vedanta, the company’s shares have shot up by over 33% in the past three months, hitting its 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. Marquee investors, including BlackRock, the world’s largest asset manager, as well as the Abu Dhabi Investment Authority (ADIA) and domestic mutual funds like ICICI Mutual Fund, Nippon India Mutual Fund and Mirae Mutual Fund have all increased their holdings in Vedanta over the past four months,” said one of the people.

The company recently announced the commissioning of a new 1.5 metric tonnes per annum (MTPA) 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.

Last 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 Limited.

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.