The rating agency Moody's Investors Service has removed Vedanta Resources' corporate family rating from Caa1 to Caa2 because of elevated risk of debt restructuring over the next few months. Moody's has also downgraded its Caa3 rating from Caa2 to Caa3 its rating on 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.
Moody's has maintained the negative outlooks at the same time.
VRL's Caa category CFR reflects VRL's unsustainable capital structure, aggressive risk appetite and weak financial management.
A Caa3 rating, which Moody's considers to be highly speculative and with the possibility of being near or in default but some possibility of recovering principal and interest, is considered highly speculative. A Caa2 rating is within the speculative grade and is judged to be of poor standing and subject to very high credit risk.
In the future, Vedanta Resources will have to pay for the debts of nearly $2 billion in the financial year 2025. Kotak's debt repayment is $3.6 billion, including those bonds, in the next financial year, according to Kotak Institutional Equities. Vedanta's debt/EBITDA stood at 3.7 times as of March 2023.
Shares of Vedanta Ltd. rose 0.2 per cent on Tuesday to Rs 224.20. The stock is near its 52-week low and has dropped nearly 30 percent so far this year.
Moody's senior vice president and lead analyst on VRL, Kaustubh Chaubal, a senior vice president of Moody's, said in a statement.
As of March 2023, s consolidated debt/EBITDA leverage was 3.7x as of March 2023 - substantial strong for its Caa category CFR. The company is still facing 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 percent stake in key subsidiary Vedanta Limited for around $500 million to stave off some of the pressure resulting from the holdingco's imminent cash needs.
Given that VRL's entire shareholding in VDL and VDL's entire 64.9 percent shareholding in Hindustan Zinc Limited, which holds around two-thirds of the group's consolidated cash, has already been pledged, this indicates that VRL has limited financial flexibility to raise financing.
The negative outlook reflects VRL's persistently weak liquidity profile and Moody's concerns over the firm's ability to address the imminent cash needs, especially at the holdco, Moody's said.
Last month, Twin Star Holdings, a promoter, sold a controlling interest in Vedanta Ltd. to Vedanta Ltd., via block deals. The Anil Agarwal-controlled company has also approved a bid to raise up to 2,500 rupees via non-convertible loans as part of its refinancing exercise.
In March this year, Moody's downgraded Vedanta Resources' corporate family rating to Caa1 from B3 earlier over increasing refinancing risks in debt maturities. The forecast was negative for the outlook for the rating.
Moody's said Vedanta's liquidity remains persistently weak, with management fees and dividends from operating subsidiaries insufficient to meet its looming debt maturities.
Its subsidiaries also remain weak. VRL's 63.8 percent-owned subsidiary, VDL, reported consolidated cash of Rs 142.9 billion as of June 30th, 2023. VDL's consolidated cash and expected cash flow from operations will be insufficient to meet capital expenditure, its own debt-servicing requirements and the large dividends to address the holdco's cash needs, Moody's said.
Earlier in the week, it was reported that Vedanta Resources was in advanced talks with global private credit funds including Cerberus Capital, Bain Capital, Ares SSG Capital and Davidson Kempner to syndicate a $1 billion short-term loan, which will be used for part-paying $3.2 billion of bonds maturing in 2024 and 2025.
The company is simultaneously in talks with bondholders to change repayment timelines and other terms on a sizable portion of $3.2 billion bonds, the Economic Times reported last week. bondholders have proposed prepaying 30 percent of bonds ahead of the upcoming roadshows in Hong Kong, Singapore and London.
Shares of Vedanta share in focus on report, parent facing resistance amid bond restructuring plan.