14 July, 2023 – Foxconn-Vedanta JV split – According to CreditSights, Foxconn’s decision to exit the $19.5 billion semiconductor joint venture with Vedanta will be a “credit negative” for the Indian conglomerate’s UK parent Vedanta Resources, which is controlled by mining magnate Anil Agarwal.
Earlier this week, Taiwan-based Hon Hai Technology Group, popularly known as Foxconn, announced the termination of its joint venture with Vedanta and stated that it will apply for incentives under the government’s semiconductor production plan individually. Vedanta, too, announced on Wednesday that it will enter the market this year and has already lined up partners.
Vedanta said this week that it will acquire semiconductor and display glass businesses from a group firm.
“Since the semiconductor venture will now be parked directly under Vedanta, we see a higher probability that a good portion of the project funding will come from Vedanta,” CreditSights, a subsidiary of Fitch Group, noted in a note.
CreditSights said in a note today that it expects increased impact on credit metrics and free cash flows for both Vedanta Resources and India’s Vedanta Ltd following Foxconn’s leave. It will also result in the loss of a manufacturing partner.
Foxconn-Vedanta JV split
According to CreditSights, the JV separation will not boost Vedanta’s immediate finance needs because the investment is long-term. According to CreditSights, “a previously announced 5-10-year timeline for building the facilities would help the conglomerate spread the capital expenditure more comfortably.”
CreditSights also maintained its “buy” rating on Vedanta Resources’ notes, citing improved refinancing prospects for some debt maturities, aided by $1.3 billion in new loan fundraisings.
It stated that its optimistic rating was intended for investors with a high risk tolerance, and that failure to refinance debts would result in a rapid sell-off in already volatile bond prices.
Agarwal stated on Thursday that Vedanta is committed to semiconductor production. He stated that semiconductor chips are the keys to young India’s ambitions, writing in Hindi, ‘issi chip mein chupi hai yuva bharat ke sapno ki chaabi’.
He even mentioned the difficulties that the international mining corporation is facing as it expands into the semiconductor industry.
He reaffirmed India’s resolve to becoming a semiconductor and display glass manufacturing hub. He invited businesses around the world to engage in the area, emphasizing India’s enormous potential.
“Several ventures are required to help India become a semiconductor and display glass hub.” “We welcome Foxconn and the rest of the world to invest in this sector,” Agarwal said.
Agarwal stated at Vedanta’s annual shareholder meeting on Wednesday that there is a significant opportunity in the electronics sector because India imports $100 billion in electronics each year. This amount includes $30 billion in semiconductor and display glass.
“We are lining up partners for our semiconductor venture,” Agarwal said, without mentioning the Foxconn exit. “This year, subject to government approvals, your company will start a historic foray into semiconductor fab and display fab.”