Metals and mining major Vedanta Resources' financial performance is expected to remain weak for the next 12-15 months on account of lower commodity prices and high debt, S&P said as it downgraded its long-term credit rating for the company.
S&P Ratings Service (S&P) said the NRI billionaire Anil Agarwal-led firm is facing "increasing pressure on liquidity, given the slower than expected progress on refinancing of its USD 1.35 billion debt maturing in mid-2016 and covenant pressures".
It added it is lowering its foreign currency long-term corporate credit rating on Vedanta Resources and its long-term issue ratings on the company's guaranteed notes and loans to 'B' from 'B+'.
At the same time, S&P said it is placing all the ratings on CreditWatch with negative implications to reflect Vedanta Resources' refinancing risk and any further liquidity pressure if the firm does not get its requested covenant waiver and relaxations, it added.
"We downgraded Vedanta Resources because we expect the company's financial performance to remain weak for the next 12-15 months," S&P's Credit Analyst Mehul Sukkawala said.
Low commodity prices have hurt Vedanta Resources' cash flows, which were already weakened by the its high debt, he added.
In addition, S&P placed the ratings on CreditWatch with negative implications to reflect the refinancing risk for the firm's mid-2016 debt maturities due to complex organisation structure. The risk further increases on account of covenant pressures, Sukkawala said.
"In our view, Vedanta Resources increasingly faces refinancing risk. This is because of low financial flexibility at the ultimate holding company (Vedanta Resources), limitations on cash flow fungibility between companies due to the organisation structure and Indian regulations, and weakening access to non-Indian banks.
"The company has USD 1.35 billion of debt outstanding of the USD 1.9 billion maturing in mid-2016," he added.
Vedanta Resources already faces the risk of breaching two financial covenants in its loans, for which it has requested banks for waivers and relaxations. However, the company has made progress in addressing the risk, S&P said.
"We also believe the access to short-term working capital facility from Indian banks will help Vedanta Ltd tide over any potential refinancing risk for the local commercial paper market (currently USD 1.5 billion outstanding) stemming from its weakening credit profile," it added.
It further said: "We expect Vedanta Resources' financial ratios to remain weak despite our expectation of improved performance over the next 12-15 months and positive free operating cash flows.
Meanwhile, Sesa Mining Corporation Employees' Union
(SMCEU) has said the workers will not report on their duties as the important demands have not yet been fulfilled.
"The major issue was regarding recognition of a union leader. That issue has not been fulfilled so the workers will not join the duties. The company had illegally suspended the operations in mid-October at Bicholim mines which they have now revoked. They have not done any favour to the workers," Ajitsingh Rane, President, SMCEU, told
