India Ratings Lowers Vedanta's Credit Rating Over Refinancing Delays

Vedanta Ltd. is facing yet another downgrade in its credit rating, as India Ratings and Research recently lowered its long-term issuer rating to IND AA-, down from IND AA. The agency has also placed Vedanta on "Rating Watch with Negative Implications," signaling a concerning outlook for the company's financial health.

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Vedanta Ltd. is facing yet another downgrade in its credit rating, as India Ratings and Research recently lowered its long-term issuer rating to IND AA-, down from IND AA. The agency has also placed Vedanta on "Rating Watch with Negative Implications," signaling a concerning outlook for the company's financial health.

This rating downgrade affects various financial instruments, including proposed and existing Non-Convertible Debentures (NCDs), Commercial Paper, project finance facilities, and term loans. India Ratings attributed this action to Vedanta's growing liquidity risk and decreased financial flexibility due to delays in securing refinancing for the management of its substantial upcoming bond maturities, set for January 2024 and the 2024 financial year. These delays may have potential repercussions on Vedanta's liquidity and financial maneuverability during this interim period.

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In an exclusive interview with CNBC-TV18, Vedanta Ltd.'s Group Chairman, Anil Agarwal, assured that the financing for the bond maturities is in place and emphasized the availability of options for repayment and refinancing. Despite this assurance, India Ratings believes that the downgrade is also influenced by Vedanta's lower-than-expected cash accruals, primarily caused by corrections in the commodity cycle and increased borrowing costs for their latest bond issuance. These factors may negatively affect the company's liquidity cover and its ability to support its subsidiary, Vedanta Resources Ltd.

Vedanta has initiated a significant strategic move by incorporating its Base Metal subsidiary, Vedanta Base Metals, as a separate entity, of which Vedanta Ltd. will initially own 100%. This demerger of businesses into six standalone listed entities, to be completed within the next 12-18 months, has put Vedanta's credit ratings under "Rating Watch with Negative Implications." India Ratings awaits clarification from Vedanta regarding the potential impact of this demerger on the company's liquidity and credit profile, as the specifics of asset and liability distribution remain undisclosed.

While the demerger offers opportunities to monetize assets within individual verticals, it may also increase structural subordination at Vedanta Resources Ltd. post-monetization, as highlighted in India Ratings' note. The agency anticipates Vedanta to secure refinancing within the next one to two months. However, any further delay or unfavorable terms in the refinancing process that could negatively affect the company's liquidity and financial flexibility may trigger additional negative rating actions.

It's worth noting that a few weeks ago, Moody's Investors Service downgraded the corporate family rating (CFR) of Vedanta Resources Ltd., Vedanta Ltd.'s parent company, citing heightened risks of debt restructuring in the coming months.