Moody's Downgrade Vedanta Resources Corporate Family Rating On Refinancing Risks For Debt Maturities

Moody's has also downgraded ratings on those bonds issued by a wholly owned subsidiary, Vedanta Resources Finance II Plc --- which is guaranteed by VRL.

Also, the outlook on all ratings remains negative.

Kaustubh Chaubal, a Moody's Senior Vice President said, "the rating downgrades reflect the increasing refinancing risk surrounding holding company (holdco) VRL's large debt maturities. Ongoing delays in holdco VRL's refinancing efforts and its continued reliance on dividend receipts are depleting liquidity at its operating subsidiaries."

Further, Chaubal added, "We previously expected holdco VRL to find sufficient funds through loans and dividends to address its debt maturities until June 2023. However, VRL faces ongoing delays in obtaining funds relative to our earlier expectations amid a funding environment that remains challenging with high-interest rates, scarce market liquidity, and tight credit availability."

Accordingly, Moody's Lead Analyst for VRL said, these issues expose the company to material refinancing risks and exacerbate the likelihood of a payment default or a distressed exchange.

Holdco VRL's cash needs for the FY24 remain large and include --- cross-border bonds of $400 million and $500 million that are due in April and May 2023, respectively, and a $1.0 billion bond maturing in January 2024. Also, an estimated $1.1 billion in term debt; $450 million of an intercompany loan; and an estimated interest bill of at least $600 million.

The global rating agency took note that holdco VRL has paid down around $2.0 billion of its debt during fiscal 2023.

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.

Moody's said, a large part of the holdco's cash needs during fiscal 2023 were met through dividend receipts and management fees from operating subsidiaries, thus substantially diminishing cash reserves. While ongoing operations and the subsidiaries' sustained cash flow will help to build liquidity, VRL's subsidiaries will need to raise debt if they have to pay large dividends to address the holdco's cash needs.

Moreover, it added, "their depleting liquidity and the potential for contagion risk from the holdco's debt woes may impair the operating subsidiaries' ability to raise funds."

On BSE, Vedanta's share price closed at ₹279.85 apiece down by 1.98% on Friday. Its market cap is around ₹1,04,025.75 crore.