vedanta resources limited credit summary... 3 introduction vedanta resources limited (“vedanta”...
TRANSCRIPT
www.vedantaresources.com
Vedanta Resources Limited
Credit Summary
(As of 30 September 2018)
www.vedantaresources.com
2
TABLE OF CONTENTS
Introduction ................................................................................................................................................................................. 3
Investment Case .......................................................................................................................................................................... 4
Strategic Priorities........................................................................................................................................................................ 8
Key Credit Metrics ....................................................................................................................................................................... 9
Credit Ratings ............................................................................................................................................................................... 9
Appendix .................................................................................................................................................................................... 10
Group Structure ..................................................................................................................................................................... 10
Financial Summary and Key Financial Ratios ......................................................................................................................... 11
Group Borrowings Summary.................................................................................................................................................. 12
www.vedantaresources.com
3
Introduction
Vedanta Resources Limited (“Vedanta” or the “Group”) is a global diversified natural resources group. Vedanta
has interests in oil and gas, zinc, lead, silver, aluminium, copper, iron ore, steel and commercial power.
Vedanta Resources Limited has listed and unlisted operating subsidiaries across India and Africa.
For the half year ended 30 September 2018, the Vedanta Group generated revenue of US$7.1 billion and EBITDA
of US$1.7 billion.
Consolidated Group Results (in US$ mn or as stated) H1 FY2019 H1 FY2018 FY2018
Revenue 7,058 6,767 15,359
EBITDA 1,710 1,694 4,051
EBITDA margin excluding custom Smelting1 (%) 29% 34% 35%
Operating Profit before special items 978 1,168 2,781
Free Cash Flow after Growth Capex (174) 232 925
Underlying attributable Profit2 (312) 26 162
ROCE% 13.8% 14.7%3 14.9%
Total Dividend (US cents per share) - 24 65
1 Excludes custom smelting revenue and EBITDA at Copper and Zinc-India operations as custom smelting has different business economics
2 Based on profit for the period, after adding back special items and other gains and losses, and their resultant tax and non-controlling interest effects
3 Recomputed on the basis of operating profit before special items and net of tax outflow, as a ratio of average capital employed
www.vedantaresources.com
4
Investment Case
Our investment case is focused on delivering sustainable long-term returns to our shareholders and creating value for our broader stakeholder base.
A large, low-cost and diversified asset base with an attractive commodity mix
Vedanta’s large-scale, diversified asset portfolio, with attractive cost positions in some of the core businesses, positions the Company well to deliver strong margins and free cash flows through the commodity cycle. Vedanta’s focus on base metals and oil, commodities with strong fundamentals and leading demand growth, makes the Company’s commodity mix particularly attractive.
Demand 2018-2030 CAGR
Source: Wood Mackenzie, EIA
Ideally positioned to capitalise on India’s growth potential
India is Vedanta’s main market, and one which has huge growth potential. Current per capita metal consumption in India is significantly lower than the global average. Urbanisation and industrialisation, supported by government initiatives on infrastructure and housing, continue to drive strong economic growth and generate demand for natural resources.
We are strongly and uniquely positioned to benefit from this growth due to our:
established operations in India;
8.2%
6.7% 6.4%
5.0% 4.8%
3.4% 3.4% 3.3%
2.0%1.4%
2.6%1.7% 1.6%
0.3%
1.9%
0.5% 1.0%0.4%
Copper Aluminium Zinc Lead Iron ore Nickel Thermal Coal Met Coal Oil & Gas
India Demand Global Demand Vedanta Resources Commodity Presence
www.vedantaresources.com
5
strong market position across our businesses: we are India’s largest base metals producer, and the largest private sector oil producer; and
our operating team with a strong track record of executing growth in India.
Source: Wood Mackenzie, EIA, BMI, Global Insight
Note: All commodities-demand correspond to primary-demand
Well-invested assets driving cash flow growth
We are ramping-up production across a number of our businesses as a result of investments in the past years.
We have already started seeing the results of our investments, with Zinc India and Aluminium delivering record
output in the past year. Now, with the new growth plans for Oil & Gas that we initiated in FY2018, we expect
further delivery on ramp-ups and strong growth in free cash flow generation.
www.vedantaresources.com
6
Operational excellence and technology, driving efficiency and sustainability
We constantly strive to improve our operations, integrate our businesses through the value chain and optimise
our performance through operational efficiencies and innovative technological solutions. We employ these tools
to further ensure that our operations have a positive impact on our stakeholders and, more broadly, society.
* Excludes custom smelting at Zinc India and Copper operations
Note: ICMM 2014 methodology adopted from FY2016 onwards
Strong Financial Profile
Our operational performance, coupled with a strong focus on optimising capital allocation, has helped
strengthen Vedanta’s financial profile. In FY2018, supported by the robust price environment, we have
delivered:
revenues of US$15.4 billion (+33% y-o-y) and EBITDA of US$4.1 billion (+27% y-o-y)
strong free cash flow, post-growth capex, of US$0.9 billion
robust ROCE of 14.9%
the highest-ever interim dividend of US$1.2 billion from Vedanta Limited, subsidiary of Vedanta
Resources in FY2018
deleveraging and extension of our debt maturities through proactive liability management
Cash and liquid investments of US$5.6 billion
1.4 1.5
0.6 0.7 0.8
FY14 FY15 FY16 FY17 FY18
Growth Capex ($bn)
2.7 2.62.3 2.2
1.7
FY14 FY15 FY16 FY17 FY18
Free Cash Flow pre capex ($bn)
45%38%
28%36% 35%
FY14 FY15 FY16 FY17 FY18
EBITDA margin (%)*
0.540.46 0.50
0.390.34
FY14 FY15 FY16 FY17 FY18
LTIFR
www.vedantaresources.com
7
In H1 FY2019, we delivered
revenues of US$7.1 billion (+4% y-o-y) and EBITDA of US$1.7 billion (+1% y-o-y)
robust ROCE of 13.8%
Cash and liquid investments of US$5.5 billion
Note: Recomputed on the basis of operating profit before special items and net of tax outflow, as a ratio of average capital employed
Proven Track Record
We have a proven management team with a diverse and extensive range of sector and global experience who ensure that operations are run efficiently and responsibly. We have taken a disciplined approach to development, growing our production steadily across our operations with an ongoing focus on operational efficiency and cost savings. Since our listing in 2003, our assets have delivered an average of 16% CAGR production growth as of FY2018.
5.6% 5.2%3.4%
12.8%14.9%
FY14 FY15 FY16 FY17 FY18
ROCE (%)
1.82.3
3.12.7
2.4
FY14 FY15 FY16 FY17 FY18
ND/ EBITDA
www.vedantaresources.com
8
16% CAGR Production Growth since Listing
All commodity and power capacities rebased to copper equivalent capacity (defined as production x commodity price / copper price) using average commodity prices for FY2018. Power rebased using FY2018 realisations, copper custom smelting production rebased at TC/RC for FY2018, iron ore volumes refers to sales with prices rebased at realised prices for FY2018
Strategic Priorities
Over the last few years, our strategic priorities have remained consistent with a focus on delivering growth and
long-term value to our stakeholders while upholding operational excellence and sustainable development
through our diversified portfolio.
In FY2018, we invested in the next phase of growth and announced expansion projects in our Oil & Gas and Zinc
business. We continued with these investments in H1 FY2019. These projects in addition to the ramp-ups
already underway in other businesses, will provide Vedanta with significant growth in its production capacities.
At the same time, we continually strive to improve our operations to achieve benchmark performance, optimise
costs and improve realisations. We are committed to achieve our objective of zero harm, zero wastage and
discharge, thus creating sustainable value for all our stakeholders.
0
500
1,000
1,500
2,000
2,500
3,000
FY2
00
4
FY2
00
5
FY2
00
6
FY2
00
7
FY2
00
8
FY2
00
9
FY2
01
0
FY2
01
1
FY2
01
2
FY2
01
3
FY2
01
4
FY2
01
5
FY2
01
6
FY2
01
7
FY2
01
8
De
sign
Cap
acit
y
Co
pp
er
Equ
ival
en
t P
rod
uct
ion
(kt
)
Zinc-Lead Silver Copper Aluminium Power Iron Ore Oil & Gas
+c. 60%
www.vedantaresources.com
9
Key Credit Metrics
The key credit metrics remain comfortable and are in compliance with covenant levels specified by the lenders.
Metric H1 FY2019 FY2018 Covenant
(as on Sep’18)
Net Debt/ EBITDA 2.5x 2.4x < 3.0x
EBITDA/Net Interest Expense1 3.8 4.0x > 3.5x
Net Assets/Gross Debt 1.4 1.5x > 1.2x
Note: 1. Interest includes capitalized Interest
The above table shows the strictest of the covenant
Credit Ratings
Vedanta Resources is rated by two major rating agencies, S&P and Moody’s:
Agency Issuer Rating Issue Rating Outlook
S&P * B+ B+ Stable
Moody’s** Ba3 B2 Stable
* Last rating action on Jan 15 2017
**Last rating action on Nov 20, 2017
Additionally, some of our key subsidiaries are rated by domestic Indian rating agencies as summarised below:
Subsidiary Long Term Rating – CRISIL*
Long Term Rating – India Ratings**
Long Term Rating – ICRA***
Vedanta Ltd AA / Positive AA / Positive
Hindustan Zinc AAA / Stable -
BALCO - AA- / Stable
TSPL - A+ / Positive
* Last rating action for the Group on March 12, 2018
**Last rating action for VEDL on Nov 1, 2017 and TSPL on Nov 24, 2017
***Last rating action for BALCO on Nov 20, 2017
www.vedantaresources.com
10
APPENDIX
GROUP STRUCTURE
Note: Shareholding as on September 30, 2018 *50% of the share in the RJ Block is held by a subsidiary of Vedanta Ltd
www.vedantaresources.com
11
FINANCIAL SUMMARY AND KEY FINANCIAL RATIOS
FY2017 FY2018 H1 FY2019 Revenues 11,520 15,359 7,058 % Growth yoy 7% 33% 4% EBITDA 3,191 4,051 1,710 % margin 28% 26% 24% % margin(excluding custom smelting) 36% 35% 29% Operating Profit before special items 2,161 2,781 978 % margin 19% 18% (16%) Profit After Tax 880 1.469 (171) Attributable Profit (23) 236 (327) Underlying Attributable Profit 45 162 (312) Gross Interest Expense (1,341)1 (1,343)2 (680)3 Cash generated from Operations 3,494 3,414 1,134 Capital Expenditure- Expansion 668 820 504 Capital Expenditure- Sustaining 145 385 214 Total Assets 31,503 29,238 28,232 Cash and Liquid Investments 9,725 5,606 5,492 Total Debt4 18,229 15,194 15,687 Net Debt 8,504 9,588 10,195
1. The Group has reclassified US $ 41.6 million arising on the bond buybacks completed during the year ended FY2017 as special items
2. The Group has reclassified US$ 108.2 million arising on the bond buybacks completed during the year ended FY2018 and charges on an
unfavourable contractor arbitration order as special items
3. This excludes gain of US$ 9 million relating to arbitration of a historical vendor claim pursuant to Supreme Court Order in Aluminium
business
4. Includes HZL temporary short term borrowing of $ 1.2bn as of 31 Mar 2017
www.vedantaresources.com
12
GROUP BORROWINGS SUMMARY
CASH AND DEBT – ENTITY WISE (AS OF 30 SEPTEMBER 2018)
The Group’s cash and liquid investments are held primarily in high-quality debt mutual funds and banks with high credit ratings. The underlying investment portfolios of the Indian subsidiaries are reviewed by CRISIL (a subsidiary of Standard & Poor) and they have rated Cash and Liquid investments of the Group at the highest level i.e “Tier 1 Portfolio Credit Quality” for H1 FY2019.
Debt numbers at Book Values. Since the table above shows only external debt, it excludes any inter-company loans 1. Includes Investment Companies 2. Cairn India Holdings limited is a 100% subsidiary of Vedanta Limited which holds 50% of the share in the RJ block 3. Others include: CMT, Fujairah Gold, MEL, VGCB, Sesa Resources Ltd, other Iron Ore companies, Vedanta Ltd. Investment companies, TSMHL, ASI and ESL
www.vedantaresources.com
13
TERM DEBT MATURITY PROFILE (AS OF 30 SEPTEMBER 2018)
Notes: Term debt of $12.6 Bn ($6.4 Bn at Standalone and $6.2 Bn at Subsidiaries) Maturity profile excludes working capital and short term borrowing to $2.7 Bn; and preference share of $0.4 Bn
Continued focus on balance sheet management o Refinanced large part of FY19 maturity in H1 FY19, minimal residual maturities in H2 o Maturity extension of standalone debt increased to 3.6 years on rolling basis at Sep 2018 from
2.8 years at Dec 2016 o Marginal increase in interest costs despite rising benchmarks
Strong liquidity: Cash and liquid investments of $ 5.5 Bn and undrawn fund based line of credit of $1.1 Bn
www.vedantaresources.com
14
DIVERSIFIED FUNDING SOURCES – TERM DEBT BREAKDOWN BY TYPE
(As of 30Sep 2018, Numbers as a % of total term debt of $12.6 billion)
42% of the gross debt is fixed interest rate, 58% floating rate
57% of the gross debt is USD / Foreign currency - denominated, 43% is INR-denominated
27%
15%
28%
30%
Bonds - USD
Bonds - INR
Term Loans - INR
Term Loans-USD/ForeignCurrency
www.vedantaresources.com
15
BONDS OUTSTANDING (AS OF 30 SEPTEMBER 2018)
The group has USD-denominated bonds issued by Vedanta Resources Ltd as tabulated below:
Issuer ISIN Maturity Date
Issue Date
Currency
Issue Amount ($ mn)
O/S Amount ($ mn)
Coupon Listing Coupon Dates
Bonds
Vedanta Resources Ltd RegS: USG9328DAH38
144A: US92241TAH59 Jan 2019 May 2013 USD
1,200 252 6.00% SGX June
and Dec
Vedanta Resources Ltd
RegS: USG9328DAG54 144A: US92241TAG76
June 2021 June 2011 USD 900 670 8.25% SGX June
and Dec
Vedanta Resources Ltd
RegS: USG9328DAM23 144A: US92241TAK88
July 2022 Jan 2017 USD 1,000 1,000 6.375% SGX Jan and
July
Vedanta Resources Ltd
RegS: USG9321DAJ93 144A: US92241TAJ16
May 2023 May 2013 USD 500 500 7.125% SGX June
and Dec
Vedanta Resources Ltd
RegS: USG9328DAP53 144A: US92241TAM45
Aug 2024 Aug 2017 USD 1,000 1,000 6.125% SGX
Feb and Aug