PFI - Vedanta smelter loan details revealed

SINGAPORE, Feb 24 (Project Finance International) - Vedanta (VED.L) has received financing commitments for its US$6.9bn Orissa aluminium smelter scheme, the biggest project financing raised in the India so far.

The total project cost is estimated at Rs320bn (US$6.9bn) and it is being funded on a 60:40 debt to equity ratio. The equity portion of about Rs128bn (US$2.8bn) will be raised through share capital, unsecured loans and internal accruals.

The project is being implemented in phases, so it is expected to generate cash before it hits the final project completion. Thus, a portion of the early cashflow could be used to fund the equity portion. In the case of any shortfall in internal accruals, Vedanta will inject quasi-equity (unsecured loans) into the project.

The total debt amount is about Rs192bn (US$4.15bn) and it is divided into three tranches. One is an existing term loan tranche of Rs19bn (US$411m) that was raised two years ago. The loan, which will mature in seven years' time, was provided by Bank of Maharashtra, Corporation Bank and Indian Bank.

The company is raising an additional Rs100bn (US$2.165bn) loan tranche through mandated lead arranger SBI Capital. It has a greenshoe tranche of Rs73bn (US$1.58bn) to offer an option of retaining any oversubscription. If there is a shortfall in the greenshoe tranche, the company may tap alternate loans or bridge loans that can be replaced by a long-term facility at a later stage.

The loan has a 10-year tenor that includes a two-year construction period, a six-month moratorium and a 7.5-year quarterly repayment period. The interest rate is slightly lower than the 11.75% that is SBI's PLR and there is a front-end fee of about 20bp. There is an annual reset and the borrower can prepay the loan without any prepayment premium.

SBI Capital has approached banks and financial institutions and so far some Rs171.5bn of debt has been committed from more than 20 institutions. Vedanta is now considering the final amount it intends to borrow. The scheme is being undertaken by Vedanta subsidy Vedanta Aluminium and the funding has limited recourse to the parent.

minerva.lau@thomsonreuters.com