Nearly USD 7 billion of Indian corporate loans are in the market, according to Thomson Reuters LPC data, after India's call to domestic banks to boost US dollar reserves in September prompted an offshore borrowing rush.
Most of the loans are for top private sector companies, but India's macroeconomic problems have taken a toll on sentiment among retail bank investors.
Vedanta's shares were under pressure this week, after Morgan Stanley analysts downgraded the company's stock rating and warned that its Zambian copper assets were overvalued.
The London-listed miner is facing a weak response on a USD 1.2 billion, five-year term loan A which refinances a USD 2.97 billion acquisition loan that backed Vedanta's acquisition of a 40 percent stake in Cairn India in 2011.
Low demand for the loan could leave its lead banks - Bank of America Merrill Lynch, Barclays, Citigroup, JP Morgan, RBS and Standard Chartered - overexposed and forced to sell the loan at a loss in the secondary market, bankers said.
The loan has attracted two commitments in senior syndication and three commitments in retail syndication so far, the bankers added.
Vedanta is also seeking to raise another USD 600 million loan to refinance a bond which comes due in January next year.
The USD 1.2 billion loan was originally part of a bigger USD 2.5 billion financing which also included a USD 1.35 billion bridge loan to a bond issue that was repaid in mid May.
Vedanta originally wanted to raise a bigger USD 3.5 billion deal but reduced it to USD 2.5 billion in April after negative investor feedback on a proposed term loan B.
STRUCTURE, PRICING PREDATE CRISIS
Vedanta's USD 1.2 billion loan was structured and priced before the rupee came under pressure in August after fears for the country's ailing economy spooked the markets.
Other loans for Indian companies are also receiving lukewarm responses as participant banks scale back lending to India. Taiwanese banks, which are some of Asia's largest lenders, are less willing to lend to Indian credits.
Reliance Industries , India's fourth biggest company by market value, has received one response in the general syndication of a USD 1.75 billion dual-tranche loan which was launched in early September.
A USD 370 million, five-year loan for technology, engineering, construction and manufacturing firm Larsen & Toubro , one of India's largest private sector companies, also launched general syndication in September but has attracted no banks to date.
Demand for Vedanta's loan has been low despite offering the richest pricing in the Indian offshore loan market. The deal has an interest margin of 275 basis points (bps) and all in pricing of 303.57bps.
"When negativity about India grips market participants, Vedanta is more affected than other companies," said one senior loan banker. "The current deal is a close reflection of true India risk."
Reliance Industries' deal pays top-level all in pricing of 170bps and 186bps for five and six-year money, while Larsen & Toubro's loan pays top-level all in pricing of 154bps.
The weak response to Vedanta's deal suggests that pricing may have to rise further to overcome investors' perception of increased risk in India.
Moody's said on September 12 that higher funding costs for Indian companies will put pressure on margins, particularly for companies challenged by slower growth prospects.
The ratings agency expects rates on rupee and foreign currency borrowing to rise.
Vedanta, which is controlled by former scrap metal dealer and billionaire Anil Agarwal, is facing rising regulatory risks on the metals and mining industry in India including iron ore mining, bauxite mining and alumina processing, according to a Fitch report.
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