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| Vedanta Resources | |
| Value | $6 billion acquisition financing for Cairn India with $1.65 billion bond |
| Bookrunners | Barclays, Citi, Credit Suisse, Goldman Sachs, JPMorgan, Morgan Stanley, RBS, Standard Chartered |
| return to the Asian Deals of the Year index | |
Despite challenges in credit markets, there was still room for innovation and scale in Asian high yield, with the standout deal coming from India. This came as part of Vedanta Resources’ takeover of a stake in Cairn India, a process that began in 2010 and required a swift raising of $6 billion of capital. This started out as a $3.5 billion term loan, a $1.5 billion bridge-to-bond deal and $1 billion bridge-to-equity. By the time it became clear that the deal was going to go through, Vedanta sought to take out the bridge-to-bond bit, and did so with a $1.65 billion bond that became India’s biggest corporate bond to date, and the largest true corporate – that is, not a government body – from anywhere in south or southeast Asia.
The numbers themselves are impressive: a five-year $750 million bond at 6.75% and a 10-year $900 million tranche at 8.25%. But the circumstances were also challenging. Ideally, launching the bond would wait until there was some certainty on the deal going ahead, but it took almost a year for the government to approve it.
“At times it was a peculiar process,” recalls Ashish Garg, vice-president of corporate finance at Vedanta. “We were on the road to market the bond, although we didn’t have any confirmation, or even an indication from the government that the approvals would come and on what conditions.”
Without that, the company and lead managers had to spell out what the alternate use of funds would be if the deal did not go through. All due diligence and disclosures had to include the target, even when it was not yet a part of the group. The company was on rating-watch negative because of the scale of the acquisition and to do a 144a deal, pro forma accounts for the consolidated company were required for the previous 12 months, yet access to those accounts was not possible.
“We had to pick and choose, and arrive at a combination of what was available to present to investors,” says Garg. “There was a lot of work with banks, lawyers and accounts to come to a mutually agreed position on what could be accepted to take this transaction to market.”
Despite that, the deal went well. The final order book reached $4.5 billion, with 210 investors in each tranche. Investors worldwide took part, with 38% of the deal going to the US and 32% to Europe on the five-year; 47% and 37% on the 10. How? Partly it was about the company and the sector – Vedanta is one of the world’s fastest-growing mining companies, with a compound annual ebitda growth rate of 41% during the last seven years, and brings exposure to India, Australia, Zambia, Namibia, South Africa and Ireland in one London-listed company.
Its entry into oil and gas through Cairn also appealed, while there was a sense that the acquisition was important “not because of the size but the characteristics of the transaction: an Indian group acquiring an Indian asset from an overseas operator,” says Garg.
He also feels that the company is likely to rise from its Ba1/BB/BB+ rating to investment grade once the Cairn cashflows start to kick in. “One or two years down the line, reflecting growth and projects being completed and generating cashflows, the rating of the company should move to investment grade,” says Garg.
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Asia |
| Sun Art Retail Group |
| Kingdom of Thailand |
| ICBC (Asia) |
| BP/Reliance |
| Vedanta Resources |
| Republic of Indonesia |
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