Moody's lowers Vedanta Resources rating to 'B3' implying high credit risk

Persistently weak liquidity, high refinancing needs triggers rating action

Global rating agency Moody’s on Monday downgraded the corporate family rating (CFR) of Vedanta Resources Limited (VRL) from “B2” to “B3”, reflecting high credit risk.

VRL's persistently weak liquidity and high refinancing needs with large, looming debt maturities are a pertinent credit risk, especially amid rising inflation and higher interest rates, Moody’s said.

Kaustubh Chaubal, Senior Vice President, Moody’s, said the rating action reflects rising refinancing pressure as VRL was yet to obtain funding for its large maturities due in April 2023 and Vedanta Resources Finance II Plc's due in May 2023.  

It (arranging finances) was taking longer than Moody's earlier expectations of completion by October 2022. The proximity of the large maturities' due dates without a refinancing completed well in advance indicates VRL's aggressive liability management, he added.

The outlook on the ratings remains negative.

The quantum of bond maturities were pegged at $ 900 million in the first quarter (Q1) of the year ending March 31, 2024. Also, holding company (holdco) VRL has $830 million loan repayments between October 2022 and March 2023. While cash dividends can somewhat ease the holdco's woes, large dividend payments will erode its operating subsidiaries' liquidity.

Moody's said it continues to view the company's unsustainable capital structure, weak liquidity and poor liability management as signs of an aggressive risk appetite. This has implications for the company's financial strategy and risk management, a key component of the rating agency's corporate governance risk assessment framework.

Moody's estimates that holdco VRL would have reduced its gross debt by almost $1 billion during the first half (H1) of fiscal 2023. Still, holdco VRL has substantial cash needs over the 18-month period from October 2022 through March 2024. These include external debt maturities of around $3.8 billion, $ 450 million of an intercompany loan; and an annual interest bill of around $600 million.

VRL is purely a holding company without any operations. it will stay reliant on dividends from operating subsidiaries and on Indian and multinational banks for funding, as cross-border capital markets are expected to remain very challenging.