Moody's Investors Service said it has downgraded the corporate family rating for Anil Agarwal-promoted Vedanta Resources Limited (VRL). The rating agency said the downgrade reflects the 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.
The rating service downgraded the rating of Vedanta Resources, the parent of Vedanta Ltd., to Caa2 from the earlier Caa1. Moody's has also downgraded the rating on the senior unsecured bonds issued by VRL and those issued by VRL's wholly-owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by VRL to Caa3 from Caa2. At the same time, Moody's has maintained its negative outlook. According to Moody's rating scale, Caa indicates obligations that are judged to be speculative of poor standing and are subject to very high credit risk, with modifier 1 indicating the higher end and 3 indicating the lower end of the rating category.
In August 2023, Vedanta Resources sold a 4.3% stake in Vedanta for $500 million to cool off some pressure arising from its imminent cash needs.
Moody's further noted that the company has limited financial flexibility to raise financing through the pledging of shares, given that Vedanta resources entire shareholding in Vedanta Ltd. (VDL) and Vedanta's entire 64.9 percent shareholding in Hindustan Zinc Limited (HZL) have already been pledged.
"Liquidity at VRL's subsidiaries also remains weak. Vedanta Resource Limited, which owns 63.8% of VDL, reported consolidated cash of Rs 142.9 billion ($1.7 billion) as of June 30, 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 Holdco's cash needs," Moody's said. "A softening commodity price environment will somewhat strain the ability of VRL's operating subsidiaries to generate cash flow," Moody's added.
Earlier, it was reported that Vedanta Resources was in advanced talks with global private credit funds 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. On September 21, Vedanta approved raising funds by issuing 2,50,000 secured, unrated, unlisted, redeemable, non-convertible Convertible Debentures (NCDs) of a face value of Rs 1,00,000 each, aggregating up to Rs 2,500 crores in one or more tranches.
Year to date, the stock has given a negative return of 33%, and after the recent downgrade, the stock has made a gap-down opening and is trading at a loss of more than 5% at Rs. 211.