Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.
Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg.
Speaker 1: Today's guests so Alice Wong, who covers China's credit markets
Speaker 1: for Bloomberg News from Hong Kong. She's been all over
Speaker 1: the biggest scoops from that region. We're delighted to have
Speaker 1: you on the show. Thank you for having me to.
Speaker 1: We're also very happy to welcome Mary Ellen Olsen, who
Speaker 1: looks at commodity producers throughout Asia for Bloomberg Intelligence, also
Speaker 1: based in Hong Kong. Thanks for having me. We'll be
Speaker 1: discussing a big Indian story with her in a bit.
Speaker 1: Spoiler alert, it's not a danny that it could be
Speaker 1: heading that way. Before we get to that, Alice, what's
Speaker 1: the mood in Hong Kong right now? I was there
Speaker 1: a few weeks ago and everyone was still wearing masks
Speaker 1: in the street. Anyone who didn't risk the hefty fine
Speaker 1: the whole worlds now is betting on a big China reopening.
Speaker 1: What's the story there? Yeah, I mean personally, I'm definitely
Speaker 1: a very excited. No, but you know what surpride new
Speaker 1: is after all, almost a thousand days of the mask
Speaker 1: mandate and now the government dropping it. Actually, most people
Speaker 1: still choose to wear a mask, so we actually had
Speaker 1: a story on that today about walk out on the street,
Speaker 1: and most people are still wearing it. But I think
Speaker 1: the market is very excited about Chinese and Hong Kong
Speaker 1: government opening out. So you can see all the markets
Speaker 1: are turning up in the region here today. Very interesting.
Speaker 1: Let's hope it keeps moving in that direction. And I
Speaker 1: really do look forward to getting back to Hong Kong.
Speaker 1: What great city. So Alice, let's talk ever Grand. But
Speaker 1: before we dig into the credit story for listeners maybe
Speaker 1: not familiar, what is it? Why do we care? And
Speaker 1: why has it dominated the headlines in Asia and around
Speaker 1: the world for so long? Yeah? What is ever Grand
Speaker 1: and why do we care about? The story? So the
Speaker 1: sheer size of it that should be enough to catch
Speaker 1: reader's attention and listeners. In this case, this is the
Speaker 1: company that was founded in nineteen ninety six and just
Speaker 1: like a lot of other developers in China, property developers
Speaker 1: in China, IF relied heavily on borrowing to feel its growth,
Speaker 1: and dollar bombs is among them. So it had about
Speaker 1: one point ninety seven trillion yen that is two hundred
Speaker 1: and eighty seven billion US dollars in liabilities as of
Speaker 1: June twenty twenty. First, that is the most among its
Speaker 1: developer peers in China. It also was the largest dollar
Speaker 1: debt borrower among its peers. So what happens when it
Speaker 1: really carries broader implications for the whole dollar bond market
Speaker 1: in the region as well as China's nearly sixty trillion
Speaker 1: US dollar financial system, and it has defaulted in It
Speaker 1: defaulted in his US dollar bob in late twenty twenty
Speaker 1: First Fastful, We're now in March twenty twenty three, and
Speaker 1: creditors are still not see in concrete progress on this
Speaker 1: debt restructuring. So that is why it's still dominating that lie,
Speaker 1: you know, because people are paying attention to debt restructuring progress.
Speaker 1: And also Everground's restructuring will set examples for other real
Speaker 1: estate firms from the nation. The sector has snowballed into
Speaker 1: record amount of default from once being one of the
Speaker 1: hardest bomb markets in the world. And Everground's own restructuring
Speaker 1: will be China's largest ever and it is only the
Speaker 1: only restructuring that's going on in the sector right now.
Speaker 1: That is carried out by dominated by the government. So
Speaker 1: let's just back up. The Everground is a property developer.
Speaker 1: They make property. Surely that's a good business to be in.
Speaker 1: It's a huge population, there's a need for housing in China.
Speaker 1: What's what's going Why can't they why can't they pay
Speaker 1: their debt? Yeah, so let's talk about that first. How
Speaker 1: you know, it's a private developer in China. It's one
Speaker 1: of the largest. It owns. It says it owns more
Speaker 1: than one thousand projects across almost three hundred cities in China.
Speaker 1: UM and really it's problems started in twenty twenty one.
Speaker 1: It had in liquidity scare and then it's that it's
Speaker 1: going to outline a problem to solve its liquidity issue.
Speaker 1: But at that time China wanted to address UM the
Speaker 1: overleveraged problem that has been existing in this sector for
Speaker 1: a long time. UM and that is essentially what's happened.
Speaker 1: You know, this is not an issue that is only
Speaker 1: belonging to everigrants. All of them are under the government's
Speaker 1: regulatory crackdown. So all of them had run into the
Speaker 1: regulatory tightening. And again that is not happening only with
Speaker 1: the real estate sector. Either China has cracked down or
Speaker 1: as we have seen on the education sector as well
Speaker 1: as the technology sector. So China's housing markets began to
Speaker 1: slow down because the government don't want people to the
Speaker 1: government's chanting slogan. Slogan is housing is for is not
Speaker 1: for speculation, So they don't want you to speculate on
Speaker 1: buying anymore. Um And we also know what happened during
Speaker 1: the pandemic. China's economy is not growing as fast as
Speaker 1: it used to be um And China's population is also
Speaker 1: shrinking now for the first time in a long time.
Speaker 1: Um And so there's the demound size of or shrinking.
Speaker 1: So all of those components adding up together right now
Speaker 1: is a hard time for China's real estate sector. So
Speaker 1: they built too much, They browed too much money, They
Speaker 1: built the wrong kind of housing. What was wrong with
Speaker 1: the business model? Yeah, like you know, you pointed out exactly,
Speaker 1: they borrow too much. They rely too heavily on borrowing
Speaker 1: to fund its growth. And it's been a lot of
Speaker 1: borrowing in a very short amount of time that is
Speaker 1: really posing risks to the whole nation's financial system. That's
Speaker 1: why China wanted to crack down on it. So they
Speaker 1: have how much debt? Well, I just mentioned ever, grind
Speaker 1: alone has over two hundred eighty billion US dollars in
Speaker 1: liabilities as of June twenty twenty first, and that's this
Speaker 1: company alone. Yeah, and what's the latest situation with them
Speaker 1: trying to figure that out? They're in the restructuring. What
Speaker 1: are the key dates we're looking for here? Yeah, they're
Speaker 1: in the restructuring. And what's really refrustrating for people is
Speaker 1: it has promised timeline and debtline over and over again
Speaker 1: and it has failed to deliver on them over and
Speaker 1: over again. So the next date that we are watching
Speaker 1: for really is March twenties. It's a court hearing date.
Speaker 1: And last time at the court's hearing which has been
Speaker 1: adjoined to March twenties, every grant had promised the judge
Speaker 1: that it will present a plan and have creditors support
Speaker 1: by early March, and we know, we know now is
Speaker 1: March first, and that is nowhere to be seen. So yeah,
Speaker 1: those are the key dates that we're watching for right now.
Speaker 1: And the back up, just let me go back a
Speaker 1: little bit on this lawsuit that I'm talking about so
Speaker 1: what's called is it's a winding up lawsuit. We have
Speaker 1: seen several developers creditors use this strategy in Hong Kong
Speaker 1: Core in the past few months. That is, essentially, when
Speaker 1: the company owes a certain amount of money that has
Speaker 1: not paid, the creditor can go to court and said
Speaker 1: this and say, this company owes me debt that is
Speaker 1: not paying me. I want to plan it to be insolvent.
Speaker 1: I wanted to go into liquidation, sell its assets, and
Speaker 1: repaying is dead. So many creditors have taken up this approach.
Speaker 1: It's not ideal because if a company actually goes into liquidation,
Speaker 1: it needs to fire sell its assets, and you know,
Speaker 1: creditors will get their money. But that is not the
Speaker 1: result that everyone wants. Someone just wants some of them
Speaker 1: just wants a better recovery. And so everyone is now
Speaker 1: in this lawsuit and it has repeatedly adjourned its hearings
Speaker 1: and delayed presenting a restructuring plant. It keeps telling the
Speaker 1: Core I'm working on a plan, but it's just not
Speaker 1: presenting it. Do we know what's holding things up? Yeah? Actually,
Speaker 1: so there are a few things that the company is
Speaker 1: having disagreements with a major group of dollar bond holders
Speaker 1: over that we have learned from sources UM, so we
Speaker 1: may get into a bit of litergree details here. UM.
Speaker 1: The source has told us before that every ground has
Speaker 1: presented two solutions. The first one is to just extend
Speaker 1: the debt UM and the second one will require swapping
Speaker 1: some of the debt into its shares as well as
Speaker 1: shares of the Hong Kong listed units UM. And now
Speaker 1: they have some disagreements over you know, the equity valuation
Speaker 1: of those shares UM, which you know, if the company
Speaker 1: is more bullish on its own share valuation whereas if
Speaker 1: creditors think it's less, it would imply a deeper haircut
Speaker 1: for the bondholders UM. So valuation is one thing. We
Speaker 1: also learned that the company is only willing to offer
Speaker 1: a small percentage of its stakes in those teamiths, whereas
Speaker 1: the editors are demanding almost entire Evergrand's entire stakes in
Speaker 1: those units. So that's another sticking point. There are other
Speaker 1: things like the the group is actually demanding the company
Speaker 1: to address is corporate governance issue that we have seen
Speaker 1: this happening, How do we prevent this from happening again?
Speaker 1: So that's among their demands. Those are a few things
Speaker 1: that they just cannot get on the same page at
Speaker 1: the moment. And as you mentioned, it's not just local investor,
Speaker 1: its foreign bond holders as well. Who are we talking about?
Speaker 1: Are there any big names in there? Yeah, Unfortunately, I'm
Speaker 1: not sure I can disclose that at the moment, but yeah,
Speaker 1: you're absolutely right. Um. Evergrand debt is not just held
Speaker 1: by local creditors. It really has deep implication for China's
Speaker 1: onshore financial system. But let's not forget it used to
Speaker 1: be the largest dollar debt borrower. Like I said, in China,
Speaker 1: China's a real estate sector. So dollar bonds are held
Speaker 1: by a lot of global investors, big and small. And
Speaker 1: the group that I'm talking about here is an ale
Speaker 1: group of dollar bond holders and they are just some
Speaker 1: of the big ones that are talking with the company.
Speaker 1: But that the company still need to after convincing them,
Speaker 1: still need to convince is Broader set all of his
Speaker 1: dollar bond holders at some point to agree on a
Speaker 1: restructuring plan to really move the progress forward. You mentioned
Speaker 1: it right down as well, and obviously the company needs
Speaker 1: to get rid of some of that. What are we
Speaker 1: talking about, do we have any sense at this point
Speaker 1: of how much of a haircut credits might be taking
Speaker 1: hire That unfortunately is not very clear at the moment yet. Okay,
Speaker 1: and so what will happen if Everground loses its lawsuit? Yeah,
Speaker 1: that's the scary thing. As I was saying, a lot
Speaker 1: of creditors have been threatening with such lawsuits to get
Speaker 1: the company to come to the negotiation table. And I
Speaker 1: would say in Everground's case, it has definitely worked because
Speaker 1: the company's restructuring did pick up pace after that winding
Speaker 1: up lawsuit was filed. But we have started to see
Speaker 1: some developers actually getting the winding up order from Hong
Speaker 1: Kong court and facing liquidation. So that's what's going to
Speaker 1: happen to Evergrants if they lose this lawsuit, the court
Speaker 1: can appoint a liquidator, comes these all of its off
Speaker 1: score assets and sell them and use them to repay
Speaker 1: its credit tres. Another thing here is you know if
Speaker 1: Evergrand doesn't want to lose this lawsuits. It's also important,
Speaker 1: also important because the company's shares and this unit shares
Speaker 1: have been on pause. They have been halted since March
Speaker 1: twenty twenty two because it could not deliver is earnings results,
Speaker 1: but it has seen them been on pause, and to
Speaker 1: get this lawsuit dismissed or result is among many conditions
Speaker 1: for it to resume his shares trading again. And if
Speaker 1: the shares do not trade for over eighteen months, it
Speaker 1: could be delisted from Hong Kong Stock Exchange. So that's
Speaker 1: another thing that you know, the company needs to watch
Speaker 1: out for. So it's obviously a huge story in China
Speaker 1: right now, and it also involves a man who was
Speaker 1: once the richest in the country and one of the
Speaker 1: most influential people. You know, he was across business, across politics,
Speaker 1: and worth about forty two billion dollars at one point.
Speaker 1: Can you give us a bit of a flavor of that,
Speaker 1: please sell us? Yeah? Sure, So Hui Kayan, like you
Speaker 1: were saying, was once China's one of China's richest and
Speaker 1: most influential business meant he used to be worth forty
Speaker 1: two US billion US dollars you were men mentioning, and
Speaker 1: now there's lost ninety three percent of that wealth he used.
Speaker 1: He also was very politically stabby. He has been part
Speaker 1: of the political advisory body since two thousand and eight,
Speaker 1: but now he's no longer part of China's People's Political
Speaker 1: Consultive Conference anymore. So he's lost as wealth and he's
Speaker 1: a political status. And in terms of the ripple effect
Speaker 1: from this whole Evergrand situation, what are the bigger implications
Speaker 1: for China's credit markets? I mean, has the default at
Speaker 1: this scale scared away foreign investors? Are they are the
Speaker 1: developers now shut out of capital markets? Yeah? Absolutely, both
Speaker 1: of those things. So for one, a lot of developers
Speaker 1: cannot come to the market now. It is, like I said,
Speaker 1: not Evergrand alone, because this is part of the making
Speaker 1: of China's crackdown on the whole sector. But Evergrand being
Speaker 1: the highest profile casualty is no doubt contributing to a
Speaker 1: large part of this. And as I was saying, the
Speaker 1: sectors no ball into require amount of default. What that
Speaker 1: has led to is the yields in the secondary market
Speaker 1: has become way too high. So they have not come
Speaker 1: down a bit to around sixteen percent that previously reached
Speaker 1: almost thirty percent. And that means if issuers want to
Speaker 1: come to the primary market to borrow new debt, they
Speaker 1: would need to pay that much or even more to
Speaker 1: have an edge over the secondary market. And that is
Speaker 1: just way too much, you know, way too expensive for
Speaker 1: borers to come to this market again. So this sector
Speaker 1: really used to be dominating, not just China, about Asia's
Speaker 1: whole dollar bond issuance, and has shrunk a lot in
Speaker 1: this past year. So that's part one that is issuers
Speaker 1: are shot out of the market, and another one is
Speaker 1: just yeah, like I said, there are a ton of
Speaker 1: defaults and unresolved debt issues, and people are watching out
Speaker 1: for these restructurings and watching to ever Grand because that
Speaker 1: is led by government's efforts right now and suport looking
Speaker 1: for a clue of how the government wants to resolve
Speaker 1: all of these issues. Okay, that's very interesting. Investors in
Speaker 1: these situations they often have quite a short memory. They
Speaker 1: you know, they take a hit, they move on, they
Speaker 1: come back because they want to invest in a huge
Speaker 1: economy like China. You do we really think that Evergrand
Speaker 1: is going to leave a lasting impression that there's going
Speaker 1: to be something that China is not going to bounce
Speaker 1: back from. That's hard to say. Today. Actually we're seeing
Speaker 1: China's property market, um, I mean in terms of sales
Speaker 1: are finally bounding back a little bit. Um. So that
Speaker 1: is the latest data from February. However, for dollar bond investors,
Speaker 1: I believe they will they will carry to his memory
Speaker 1: with that's for how long, I'm not sure, but you know,
Speaker 1: for one, if the companies really also depends on the
Speaker 1: company's restructing plan. Right, is just going to extend its
Speaker 1: debt for twelve years as we had reported previously, than
Speaker 1: keep pointing to wait out those twelve years until they
Speaker 1: can finally get their money back, And I bet they're
Speaker 1: going to seem a matter of memory. Alice One of
Speaker 1: Bloomberg News, thank you so much for joining us. This
Speaker 1: is a fascinating story with broad implications, and we look
Speaker 1: forward to reading all of your scoops on the Bloomberg
Speaker 1: terminal and of course at Bloomberg dot com. Thank you
Speaker 1: Switching gears here a bit. As I mentioned earlier, we
Speaker 1: are very fortunate to have Mary Ellen Olsen from Bloomberg Intelligence,
Speaker 1: also based in Hong Kong. Now, when we met a
Speaker 1: few weeks ago, Mary Ellen, we talked a bit about India,
Speaker 1: which has been in the news quite a bit because
Speaker 1: of a Danny. Just to catch everyone up a bit.
Speaker 1: Danny is an Indian ports to renewable energy conglomerate that
Speaker 1: was accused of accounting fraud and stock manipulation and experienced
Speaker 1: a big route in its stock hand bond prices. There's
Speaker 1: a lot of concern now over whether it can repay
Speaker 1: the debt. The news has really shone a light on
Speaker 1: all Indian companies, the way they're structured and how they run.
Speaker 1: But we're not here to talk about Donnie. Instead, we're
Speaker 1: going to dig into another big Indian firm, Vedanta Resources,
Speaker 1: which is a getting a lot of attention and involves
Speaker 1: a highly also involves a highly leveled tycoon. So to
Speaker 1: start with, I've got to ask Mary Ellen, is this
Speaker 1: the next to Danny we're looking at here? Well, I
Speaker 1: think there's some similarities between the two companies, but I
Speaker 1: think Vedanta is starting from a much different point than
Speaker 1: where we saw a Donnie's start. A Donnie's Sports company
Speaker 1: is rated in the investment grade category in the low
Speaker 1: triple B space, and of course Vedanta is rated in
Speaker 1: the low single B space. So I think we can
Speaker 1: expect that it has more governance issues, more liquidity and
Speaker 1: financial risk than a Donnie to start with. So, just
Speaker 1: to kind of set the state, I think it's starting
Speaker 1: off from a weaker position I think the similarity similarities
Speaker 1: between the two companies, however, do raise some some flags.
Speaker 1: And I think the key similarities would be that they're
Speaker 1: both you know, run by the promoter, which directs the
Speaker 1: you know, the direction that the company goes in. They
Speaker 1: both have very complex corporate structures and that can limit
Speaker 1: transparency and also to some extent give rise to information risk.
Speaker 1: And finally, the companies both have a lot of debt
Speaker 1: and have used debt to grow their businesses. So I
Speaker 1: think that in general there is some flags that can
Speaker 1: be seen across both of the names. So we just
Speaker 1: to back up. Let's let's talk about the company itself.
Speaker 1: For those not familiar, what is Vadanta Resources? What do
Speaker 1: they do? And you know why why why do we
Speaker 1: care about them in terms of like the you know,
Speaker 1: the Indian and the Asian commodity market. So the Danta
Speaker 1: is a mining company. Its key industries are oil, aluminum,
Speaker 1: and zinc. Those are what comprise the bulk of its
Speaker 1: EBIATA generation. And I think that we care about them
Speaker 1: in the US dollar bond space is because they've been
Speaker 1: a heavy dollar bond issuer. At the moment, the holding
Speaker 1: company has about five billion in dollar bonds outstanding, and
Speaker 1: it does have liquidity risks, and people are worried about
Speaker 1: whether or not they have the resources to pay the debt,
Speaker 1: especially given the fact that their their debt maturity profile
Speaker 1: is relatively short term. But the metals that you mentioned
Speaker 1: and the set that they're in generally, I mean, that's
Speaker 1: been a good, good one over the last few years, right,
Speaker 1: the commodities have rallied, the metals have been in demand,
Speaker 1: there's been a big boom. Why why would this company
Speaker 1: not do well well? I think there's a story. Obviously,
Speaker 1: with all high yield companies, I think there's a story.
Speaker 1: And the story with this company really goes back to
Speaker 1: its corporate structure. The US dollar bond bower and obligore
Speaker 1: is Vedanta Resources, so that sits at the top of
Speaker 1: the corporate structure. But it's not an operating company. So
Speaker 1: even though it has all that, it doesn't have any
Speaker 1: operations itself. So it relies on the upstream of dividends
Speaker 1: from its subsidiaries. So its core subsidiary is Vedanta Limited
Speaker 1: and it owns about seventy percent of that and Vedanta
Speaker 1: Limited owns one hundred percent of the oil and gas
Speaker 1: assets and they account for about twenty five percent of EBIDA,
Speaker 1: and Vedanta Limited owns sixty five percent of the zinc assets,
Speaker 1: which account for about fifty percent of EBIDA, and then
Speaker 1: it owns about fifty one percent of the aluminum company,
Speaker 1: which is about fifteen percent of EBIDA. So you've got
Speaker 1: to keep in mind that all these subsidiary companies they
Speaker 1: also have debt and they also have you know, capex
Speaker 1: needs that they need to fund. So what's left over
Speaker 1: is then you know, what can be upstreamed to eventually
Speaker 1: to the Danta resources to cover the obligations there. So
Speaker 1: that complexity creates a problem in terms of the efficiency
Speaker 1: of you know, cash flows throughout the corporate structure to
Speaker 1: to repay all of the obligations. So can it means
Speaker 1: repents and how does it do that? Well, Um, you know,
Speaker 1: it has some levers that it can pull. It's it's
Speaker 1: primary level lever has been over the past several months,
Speaker 1: the dividend upstreams, particularly from the zinc subsidiary, which is
Speaker 1: cash risk rich. Um. In addition to that, it has
Speaker 1: some nominal fees that it can assess on its subsidiaries
Speaker 1: and it can bring those moneys up to the holding company,
Speaker 1: and of course it can also rely on new funding
Speaker 1: from from banks, either domestic banks or international banks. So
Speaker 1: those are the key levers that they're looking at at
Speaker 1: the moment. They actually came out today saying that they
Speaker 1: were looking at raising about one point eight billion from
Speaker 1: banks and were in advanced negotiations in that regard at
Speaker 1: the moment, although they did not really name any counterparties
Speaker 1: or disclose any time frames that they're looking for foreign
Speaker 1: investors in that they didn't really specify the banks, but
Speaker 1: the sense is that some of that would come from
Speaker 1: domestic and they're also looking at some international banks. Okay,
Speaker 1: but based on the yields right now in the dollar market,
Speaker 1: would they have too they be able to get an
Speaker 1: affordable rates on that that remains to be seen. Um.
Speaker 1: Certainly their you know, their bonds themselves are yielding in
Speaker 1: the double digit territory, and press reports a couple of
Speaker 1: weeks ago did indicate that the potential funding for the
Speaker 1: company was was quite high. But previously the company has
Speaker 1: shown a willingness to finance at pretty high rates. Back
Speaker 1: in twenty twenty one, they issued US dollar debt at
Speaker 1: at about thirteen percent or over so they do show
Speaker 1: an ability to to bring in funds even if they
Speaker 1: have to pay high rates. And that yield you mentioned,
Speaker 1: I mean, to what extent do you think that's influenced
Speaker 1: by the situation at A Donnie at the moment, you know,
Speaker 1: I don't. I don't think that there has been a
Speaker 1: huge impact just because the starting rates, um, you know,
Speaker 1: pre the Hindenburg report on a Donnie, we're pretty high.
Speaker 1: You know, right now they're in the double digits. They
Speaker 1: were there then as well. Where I've seen more of
Speaker 1: a crossover impact probably would be on the stock prices,
Speaker 1: which took a dive just this week. They were down
Speaker 1: I think up to twenty no, about ten percent this week,
Speaker 1: and that kind of coincided with all this rhetoric coming
Speaker 1: out comparing Vedanta and Donnie. And of course here before
Speaker 1: the stockholders had been receiving good dividends because of all
Speaker 1: these upstreams. But I think this idea that there's a
Speaker 1: contagent risk feeding into Vedanti helped push the stock prices.
Speaker 1: So I've seen more of an impact probably in the
Speaker 1: stock than in the bonds. That at least I can discern. Okay,
Speaker 1: they already have a very low credit rating, right, do
Speaker 1: we expect more downgrades in the next few weeks. Well, so,
Speaker 1: at the moment, the SMP is the only company that
Speaker 1: officially rates Vedanni, and they rate it at B minus
Speaker 1: and they have a stable outlook. Moodies did rate the company,
Speaker 1: but Danta reportedly withdrew the contract after Moodies downgraded them
Speaker 1: to the triple C category on liquidity risks, and SMP
Speaker 1: has said that the rating could come under pressure if
Speaker 1: they don't make progress in getting some financing in the
Speaker 1: door in a timely fashion. And as a rule of thumb,
Speaker 1: I think the rating agencies like to see you an
Speaker 1: answer for how they're going to repay debt anywhere from
Speaker 1: three to six months before the debt matures, so they're
Speaker 1: coming up to that benchmark. They do have bonds that
Speaker 1: mature in April and May this year, so the agent
Speaker 1: and then again in January twenty twenty four. So I
Speaker 1: would expect that in the next couple of weeks the
Speaker 1: rating agency would have to follow up on its indication
Speaker 1: about where it sees the financing coming from and making
Speaker 1: a decision about whether or not they need to change
Speaker 1: the rating. One of them has a triple C that's um.
Speaker 1: You know, if you read the small print of the
Speaker 1: rating agencies reports, that implies very high probability of default.
Speaker 1: Is that what we're expecting? Well, I think that that's
Speaker 1: you know, again, this is a high yale company, and
Speaker 1: there's always stories with these companies, and Danta has been
Speaker 1: here before. It has had a triple C rating before
Speaker 1: and has pulled out of it. And I think, you know,
Speaker 1: at the moment, the company is still saying that it
Speaker 1: is speaking to banks, and I don't think that we
Speaker 1: can totally discount that even though they have not really
Speaker 1: produced anything concrete at the moment. I think one of
Speaker 1: the things that's in the company's favor is that they
Speaker 1: do have some time to play with. They can upstream dividends,
Speaker 1: and SMP confirm that in their view, they could probably
Speaker 1: fund the debt repayments through the end of June through
Speaker 1: these dividend upstreams and other fees that the company could
Speaker 1: get in. So even if SMP does change its outlook
Speaker 1: or it's rating on the company, it still has some
Speaker 1: time to play with before there would be a danger
Speaker 1: of a default. And given the company's pass track record
Speaker 1: in you know, coming up with a solution. I think
Speaker 1: that that would be what's on everybody's mind. What can
Speaker 1: they do to turn this around in the absence of
Speaker 1: additional bank funding. But it does seem at the moment
Speaker 1: that that is what they're focused in on and what
Speaker 1: they're hoping to target in the near term. Okay, but
Speaker 1: they could also sell some assets right when they have
Speaker 1: things like Zinc International. They've been trying to get rid
Speaker 1: of what's going on there, so that so the sale
Speaker 1: of Zinc International would be would have a profound and
Speaker 1: material impact on their liquidity if if it were to happen,
Speaker 1: and it does look as though that's being sidetracked at
Speaker 1: the moment due to government objection. So what's happening is
Speaker 1: Zinc International are the African assets of um Vedanta Limited,
Speaker 1: which which are wholly owned, and they are trying to
Speaker 1: sell those assets to their sixty five percent owned Hindustand Zinc,
Speaker 1: which is the cash which company, and that would in
Speaker 1: effect help transfer or pull about three billion out of
Speaker 1: Hindustan Zinc up to the Vedanta Limited level, which could
Speaker 1: then be upstreamed more readily to the holding company to
Speaker 1: help support its liquidity needs, so that that actually would
Speaker 1: have been a helpful transaction. But again it does look
Speaker 1: as though the government has objected to it, and even
Speaker 1: Fidanta itself has kind of stepped back and said that
Speaker 1: they need to get shareholder approval in order for that
Speaker 1: transaction to go forward. And the government is a shareholder,
Speaker 1: why does the government object? I think there's a couple
Speaker 1: of different things that have come out in the press.
Speaker 1: In general, I think there's been some concern on the
Speaker 1: valuations that perhaps they're too high. I think also, you know,
Speaker 1: it's a related party transaction and you know, the shareholder interest,
Speaker 1: you have to make sure that they're being you know,
Speaker 1: wholly met. From my perspective, the transfer of the Zinc
Speaker 1: International assets, you know what, they do require some CAPEX
Speaker 1: investment for growth, so that could be a drag potentially
Speaker 1: on the consolidated company. And the final consideration is just
Speaker 1: the government itself, the Indian government, it has divestment targets
Speaker 1: to meet under its budget and it was planning on
Speaker 1: divesting a piece of Hindustan Zinc. When the announcement came
Speaker 1: out from Vedanta about the asset sale, the share price
Speaker 1: did drop on Hindustan Zinc, so that also could have
Speaker 1: affected the government's view of the transaction. So those are
Speaker 1: some of the things that you know, have kind of
Speaker 1: been in the press or I've been thinking about about
Speaker 1: why the government could be objecting. Okay, you mentioned levers
Speaker 1: at the beginning of There any other levels that the
Speaker 1: company can pull I think I think you mentioned one
Speaker 1: in terms of asset sales. They have spoken in the
Speaker 1: past about potentially selling down pieces of their steel business
Speaker 1: or even some of their copper business. But the question
Speaker 1: there is on you know, timeliness, you know, because those
Speaker 1: things may not happen within a time frame that could
Speaker 1: meet their liquidity needs. Previously they talked about selling down
Speaker 1: pieces of their listed companies, but you know, that could
Speaker 1: be more problematic in terms of you know, uh, opening
Speaker 1: up new shareholders, which could create some some leakage from
Speaker 1: dividend distributions. And another avenue would be intercompany loans, although
Speaker 1: the government but the company has said that they're not
Speaker 1: really interested in doing or what wouldn't do those anymore
Speaker 1: previously and some of the calls that they've had, But um,
Speaker 1: I suppose that could be another avenue. You mentioned the
Speaker 1: very high yields that they're paying. Do you think investors
Speaker 1: are being compensated for the risks here. Well, I mean,
Speaker 1: I guess that there's a you know, a right price
Speaker 1: for for every every Bondum. Certainly, I think that they're
Speaker 1: factoring a lot of the risks, and I think that
Speaker 1: at the moment, you know, there's there's plenty of people
Speaker 1: out there that are on both sides of the fences
Speaker 1: about whether or not the government is going. Um. Sorry
Speaker 1: I keep saying the government the company can pay or
Speaker 1: not pay m But I guess that remains to be seen.
Speaker 1: You know, if they if they come through with the liquidity,
Speaker 1: you know, the financing, and we're able to resolve their
Speaker 1: liquidity issues, then some people will benefit for sure. And
Speaker 1: You've been looking at this company for a long time,
Speaker 1: and I'm glad, I'm glad you raised the point that
Speaker 1: they are not. This is not the first time that
Speaker 1: they've been in the situation. You know, the owner has
Speaker 1: faced the liquidity woes in the past. He has always
Speaker 1: managed to get the money and pay on time. Um,
Speaker 1: what's different about it this time around? I think the
Speaker 1: big difference, um, would be that there's probably a few
Speaker 1: more doors that are closed so that they do have
Speaker 1: to in the near term, perhaps lean a little bit
Speaker 1: more heavily on the banks um and I guess I'm
Speaker 1: talking about just market access. Given the state of the
Speaker 1: the bond market at the moment, especially for high yeld issuers,
Speaker 1: we have not seen a lot of issue WinCE and
Speaker 1: it doesn't seem a likely avenue for Vedanta to refinance
Speaker 1: in at the moment. We already talked about, you know, HCl.
Speaker 1: I think that that, you know, gave a lot of
Speaker 1: people a lot of hope, but that avenue seems to
Speaker 1: have been shut down by the government objection. And previously
Speaker 1: you had a situation where they were hoping to privatize
Speaker 1: Videnta Limited. They've been down that road and have increased
Speaker 1: their stake, but I'm not sure that you know, they
Speaker 1: would renew that at any time in the near term.
Speaker 1: So it seems like they have a few more doors
Speaker 1: that have closed on them, at least unless unless they're
Speaker 1: able to come up with some new ideas. Okay, great,
Speaker 1: we'll definitely be watching with a lot of interest. We'll
Speaker 1: read your analysis. Have it done to in All Things
Speaker 1: Asia Commodities and thank you how much, Mary Ann Mary
Speaker 1: Ellen Olson of Bloomberg Intelligence. You can read all of
Speaker 1: Mary Ellen's analysis on the Bloomberg Terminal, and thanks again
Speaker 1: to Alice Huang from Bloomberg News. Read all of her
Speaker 1: scoops on the terminal and at Bloomberg dot Com. Definitely
Speaker 1: keep an eye on that evergrand story, Alison. Her team
Speaker 1: will continue to break a lot of news there over
Speaker 1: the coming weeks. I'm James Crombie. It's been a pleasure
Speaker 1: having you. See you next week on the Credit Edge.