BackVedanta Resources may struggle to meet cash needs in Q4: Moody’s
The cash shortfall will deteriorate further through September 2022 amid large upcoming debt maturities, it said
PremiumBillionaire Anil Agarwal’s Singapore-listed holding company Vedanta Resources Ltd (VRL), which controls the domestic metals and mining conglomerate, Vedanta Ltd, will struggle to cover its cash requirement in the January-March quarter, said a report by global credit ratings agency Moody’s. The cash shortfall will deteriorate further through September 2022, it said.
Large upcoming debt maturities and VRL’s negative free cash flow in FY21 also increase the risk that it might run out of liquidity, Moody’s said.
Credit analysts are focusing on the $7.5 billion debt, which is about 50% of the group’s total consolidated debt due in March 2022. It includes $2.5 billion for VRL and $425 million for VRL’s sole shareholder Volcan Investments Ltd. “Without operations of its own, VRL’s need to refinance debt maturities at a time of tight capital market liquidity puts undue pressure on key subsidiaries to upstream cash," said the report by Moody’s.
Earlier this month, Vedanta’s voluntary delisting bid failed as it could not get the minimum number of bids required from its minority shareholders to take it private. If Vedanta could have completed the delisting process, it would have given the company complete control of its cash-rich subsidiaries, Hindustan Zinc Ltd (HZL) and Cairn India Holdings Ltd, to send funds upstream through dividend payments and corporate loans. Mint reported last week that VRL was exploring the option of inter-corporate loans from its subsidiaries to tide over cash needs, a move that may not go down well with its minority investors.
“The governance risk (at VRL) also remains high, with share pledges, persistently weak liquidity, and large imminent refinancing needs reflecting an aggressive financial strategy and high-risk appetite," Kaustubh Chaubal, Moody’s vice president and senior credit officer, said in the report.
Moody’s said VRL remains weakly capitalized with thin equity and “Volcan has not infused any fresh equity into VRL since its 2003 initial public offering even during periods of acute stress at the holding company (VRL). We do not expect any equity infusions in the future."
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