Moody’s downgrades Vedanta Resources’ corporate family rating to Caa2; outlook remains negative
- Moody's has also downgraded to Caa3 from Caa2 its rating on the senior unsecured bonds issued by Vedanta Resources and those issued by Vedanta Resources's wholly owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by Vedanta Resources.
Moody's Investors Service downgraded Vedanta Resources' Limited (VRL) corporate family rating (CFR) from Caa1 to Caa2 over elevated risks of debt restructuring over the next few months. With the current downgrade, the outlook remains negative for the parent company of Vedanta Ltd, as per the global ratings agency.
Moody's has also downgraded to Caa3 from Caa2 its rating on the senior unsecured bonds issued by Vedanta Resources and those issued by Vedanta Resources' wholly owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by Vedanta Resources.
Also Read: Moody's downgrade Vedanta Resources corporate family rating on refinancing risks for debt maturities
Moody's Investors Service defines a Caa3 rating as one judged to be highly speculative and with the likelihood of being near or in default but some possibility of recovering principal and interest. A Caa2 rating is within speculative grade and is judged to be of poor standing and subject to very high credit risk.
"The downgrade reflects elevated risk of debt restructuring over the next few months because VRL has not made any meaningful progress on refinancing its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024," says Kaustubh Chaubal, a Moody's Senior Vice President and lead analyst on VRL.
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"VRL's consolidated debt/EBITDA leverage was 3.7x as of March 2023 – substantially strong for its Caa category CFR. Still, the company continues to face challenges in refinancing its debt, a reflection of reduced appetite from the lending community, and a key credit concern," Moody's said in its note.
Moody's said VRL sold a 4.3 per cent stake in August 2023 in key subsidiary Vedanta Limited for around $500 million to stave off some of the pressure arising from the holdco's imminent cash needs.
"Vedanta Resources Ltd.'s concentrated ownership with the sole shareholder, Volcan Investments, keeps the risk elevated for related party transactions to the detriment of creditors. In addition, several senior management departures in recent years pose risks to continuity and stability of its operations," Moody's Investors Service wrote.
The negative outlook reflects VRL's persistently weak liquidity profile and Moody's concerns over the company's ability to address the imminent cash needs, especially at the holdco, Moody's said.
Earlier this year, Moody's had downgraded Vedanta Resources' CFR to Caa1 from B3. It had also downgraded the ratings to Caa2 from Caa1 on the senior unsecured bonds issued by VRL. The rating agency had highlighted that holdco VRL has paid down around $2.0 billion of its debt during fiscal 2023.
Moody's had said Vedanta's liquidity remains persistently weak with management fees and dividends from operating subsidiaries insufficient to meet its looming debt maturities.
However, the agency considers that maintaining liquidity and proactive liability management are more pertinent in preserving VRL's credit quality, as opposed to debt reduction, given its Moody's-adjusted consolidated gross debt/EBITDA remains around 4.0x, comfortably below the previous downgrade trigger of 5.5x.
On Tuesday, shares of Vedanta settled 0.27 per cent at ₹224.05 apiece on the BSE.
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