Rating agency Standard & Poor’s (S&P) has upgraded the rating of Vedanta Resources (VRL) to stable from negative, citing reduced refinancing risk.
The upgrade comes after Vedanta Resources announced an open offer to acquire 10 per cent of its domestic arm Vedanta Ltd. If the open offer is successful, the holding of the promoter group will rise to 65.11 per cent.
According to S&P, this transaction, which should conclude by March, will strengthen the corporate structure of the holding company and improve its access to subsidiary-level cash and cash flow.
Further, the open offer reiterates Vedanta Resources’ commitment to improve its capital structure, which the rating agency said is a positive for the company’s refinancing initiatives.
“Strong operating momentum and sizable free cash flow generation at Vedanta Ltd also improve liquidity at the holding company level. We estimate free cash flow at Vedanta Ltd (including Hindustan Zinc) will be $ 1.6 billion-$ 1.8 billion over the 12 months to March 31, 2022.
“This, together with $4.8 billion of cash available at Hindustan Zinc and Vedanta Ltd as of September 2020, gives Vedanta Resources greater flexibility to utilise dividend payments for debt servicing if needed, thanks to reduced dividend leakage after the open offer,” the rating agency observed.
