Foxconn-Vedanta JV split credit negative for UK conglomerate, says CreditSights report

According to the debt analysis company CreditSights, Foxconn's choice to cancel the $19.5 billion collaboration with Vedanta in the semiconductor industry will have a detrimental effect on the UK-based parent company Vedanta Resources. Vedanta Resources is helmed by mining magnate Anil Agarwal.

Earlier this week, Foxconn, a technology group based in Taiwan, announced that it had cancelled its partnership with Vedanta for chipmaking. Instead, Foxconn revealed its plan to independently seek incentives provided by the government's semiconductor production plan. On the other hand, Vedanta declared on Wednesday that it remains committed to entering the chipmaking industry this year and has already secured partnerships for this venture.

Only a few days ago, Vedanta announced its intentions to purchase the divisions responsible for semiconductors and display glass from one of its affiliated companies.

In the past, CreditSights had stated that the credit impact on Vedanta Resources, according to the previous agreement, would be very small. This was reported by Reuters, who mentioned that Volcan, the holding company of Vedanta, was responsible for making investments in semiconductors.

According to a note by CreditSights, a division of the Fitch Group, they believe that since Vedanta now has control over the semiconductor venture, it is more likely that a significant amount of the project funding will be provided by Vedanta.

According to CreditSights' recent update, it is anticipated that Vedanta Resources and India's Vedanta Ltd will face additional pressure on their credit metrics and available cash flows following Foxconn's departure. This will also lead to the loss of a collaborator that shared the burden of manufacturing expenses.

According to CreditSights, the division of the joint venture (JV) will not cause Vedanta to require additional funds immediately because the investment is focused on the long-term. CreditSights pointed out that the earlier plan to construct the facilities over a period of 5 to 10 years will allow the conglomerate to manage its capital expenditure more easily.

CreditSights has upheld its positive recommendation on the bonds of Vedanta Resources, affirming a "buy" rating. The firm noted that the refinancing prospects for certain debt obligations have become more favorable thanks to the success of raising $1.3 billion in new loans.

The blog mentioned that it had a positive outlook for investors who are willing to take higher risks, and emphasized that if debts cannot be refinanced, this would lead to a significant decrease in bond prices, which are already unstable.

Agarwal stated on Thursday that Vedanta has a strong dedication to producing semiconductors. He emphasized the significance of semiconductor chips in fulfilling the aspirations of the youth in India, expressing it as 'the key to unlocking the dreams of young India, concealed within this very chip.'

He emphasized the difficulties that the international mining corporation encounters as it ventures into the semiconductor industry.

He restated his dedication to converting India into a central location for manufacturing semiconductors and display glass. He encouraged companies worldwide to contribute their investments to this sector, highlighting the immense opportunities that India offers.

Agarwal expressed the need for multiple endeavors to aid in India's transformation into a prominent semiconductor and display glass center. He extended a warm invitation to Foxconn and the global community to consider investing in this particular industry.

During Vedanta's yearly gathering of investors, Agarwal expressed that the realm of electronics holds immense potential, considering that India currently relies on imports amounting to $100 billion in this sector annually. Specifically, $30 billion is spent on semiconductor and display glass imports.

“We have secured partnerships for our semiconductor project,” Agarwal stated while leaving out the information about Foxconn's withdrawal. “This year, once we obtain government approvals, our company will embark on a groundbreaking journey into semiconductor fabrication and display fabrication.”