Moody’s Investors Service (Moody’s) has downgraded the corporate family rating (CFR) of Vedanta Resources Ltd (VRL) to Caa1 from B3 over increasing refinancing risks in debt maturities.
The outlook remains negative.
The agency has also downgraded the ratings on the senior unsecured bonds of VRL and those issued by wholly owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by the parent, to Caa2 from Caa1.
According to the rating agency’s website, obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
"The rating downgrades reflect the increasing refinancing risk surrounding holding company (holdco) VRL’s large debt maturities. Ongoing delays in holdco VRL’s refinancing efforts and its continued reliance on dividend receipts are depleting liquidity at its operating subsidiaries,” Kaustubh Chaubal, Moody’s senior vice-president said.
The rating action led to domestic arm Vedanta Ltd shedding 1.98 per cent to Rs 279.85 at close on Friday.
During intra-day trades, shares fell over Rs 4.50 to touch a low of Rs 272.55 on the BSE. S&P Global Ratings had said that the ratings of Vedanta Resources may “come under pressure” if it is unable to raise $2 billion and/or sell its international zinc assets.
The concerns over Vedanta’s debt repayment liabilities surfaced after the government opposed the proposed sale of the international zinc business to Hindustan Zinc. Vedanta had proposed the sale of the zinc business to Hindustan Zinc Ltd, in which its domestic arm has 65 percent ownership for nearly $3 billion.
Moody’s said the holding company VRL’s cash needs for the next fiscal year remain large: a $400-million bond is due in April and another $500 million in May.
The company will also have to pay $1 billion in January.
Besides, there is an estimated $1.1 billion in term debt,$450 million of an inter-company loan and an estimated interest bill of at least $600 million.
“We previously expected holdco VRL to find sufficient funds through loans and dividends to address its debt maturities until June 2023. However, VRL faces ongoing delays in obtaining funds relative to our earlier expectations amid a funding environment that remains challenging with high interest rates, scarce market liquidity and tight credit availability,” Chaubal said.
