India’s Vedanta presses on with plan to double oil production

Indian tycoon Anil Agarwal is pushing ahead with an aggressive oil and gas expansion programme, undeterred by a crash in prices and concern about debt levels at his company Vedanta Resources.

Mr Agarwal said he would not rein in a $4.5bn investment plan for Vedanta’s oil exploration arm, Cairn Energy, aimed at more than doubling production to 450,000 barrels per day in two years.

“There is no hold or any cut in cost,” said Mr Agarwal in an interview. “We are the only oil producer in India in the private sector; we’re very excited.”

The spread of coronavirus and a price war between Saudi Arabia and Russia have sent oil prices tumbling. Brent crude, the international benchmark, traded below $25 a barrel last week at its lowest level since 2003.

With the world awash with so much crude oil, analysts reckon the price could fall to the teens or even into single digits, presenting the industry with its gravest crisis in 100 years.

However, Mr Agarwal argued that India — the world’s third-largest oil importer — is on a path to energy self-sufficiency. Cairn has tied up with US oilfield service companies including Halliburton and Baker and Hughes to scale up capacity, he said.

Mr Agarwal was speaking before Moody’s on Tuesday placed Vedanta Resources on review for another downgrade, a move that the credit rating agency said “reflects our expectation that low oil and base [industrial] metal prices will significantly strain Vedanta’s financial metrics, at least through the fiscal year ending March 2021”.

Earlier this month Moody’s cut its rating on Vedanta to junk, saying low and volatile commodity prices meant the company’s earnings were unlikely to improve. Vedanta’s dollar bonds due in 2024 are currently trading at less than 40 cents.

A self-made billionaire, Mr Agarwal has built the company he founded into a large natural resources group using borrowed money to buy distressed assets from the Indian government and mining companies around the world.

It has two main assets: a 50.1 per cent stake in India-listed Vedanta Ltd and a 79 per cent holding in KCM, a copper mine and smelter in Zambia, which has been seized by the government. Vedanta Ltd in turn controls Hindustan Zinc and Cairn India as well as aluminium, zinc and copper assets.

Through this complex structure, Mr Agarwal controls a sprawling natural resources empire focused mainly on India and which produces iron ore, bauxite, aluminium, copper, zinc, power and oil.

At the end of September, Vedanta’s net debt stood at $9.5bn, or 2.8 times adjusted earnings before interest, tax, depreciation and amortisation in 2019. The company needs to refinance $1.9bn of debt between now and September 2021 while Volcan, Mr Agarwal’s family trust, has to repay $625m of loans.

Asked about the Moody’s downgrade to junk status, Mr Agarwal, said Vedanta was in “very, very healthy situation” when it comes to servicing its debt, adding that no lenders have asked for more collateral.

“We are very comfortable to honour all our commitments,” said Mr Agarwal, acknowledging “it is the time to be ready to tighten our belts” although not in oil and gas.

But while Mr Agarwal expects commodity prices to rally in the near future, his view is not widespread.

“I don’t share Mr Agarwal’s optimism things will turn around,” said Paranjoy Guha Thakurta, author of Gas Wars: Crony Capitalism and the Ambanis. “There’s absolutely no doubt that like much of the world, India has entered a recessionary phase.”

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