Global ratings agency Moody's Investors Services said it is changing the outlook on Vedanta Resources Ltd to negative from stable.

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"We view the related-party investment as credit negative for Vedanta and a means to fund the risk appetite of its shareholder, a clear indication of the company's willingness to deploy cash at Vedanta to support Volcan

interests," said Kaustubh Chaubal, vice president and senior credit officer, Moody's.

Moody's also affirmed the company's Ba3 corporate family rating (CFR) and the B2 rating on the senior unsecured notes.

"The rating action reflects the heightened risk of cash movement outside Vedanta, following a $561 million structured payment by the company's operating subsidiary to ultimate shareholder Volcan Investments Ltd.. As

well, our expectations for underlying operating earnings have been lowered, which will lead to elevated leverage for the ratings,", Chaubal wrote in a note on February 4, 2019.

The ratings agency further said it could downgrade the Vedanta's ratings if it takes on any additional exposure to Volcan, including direct or indirect upstreaming.

The CFR could also be downgraded if commodity prices weaken for an extended period such that LTM consolidated EBITDA drops below $3.5 billion despite the company's efforts in ramping up shipments and containing costs, it said, adding, "The negative outlook incorporates our concern that there is an increased likelihood that Vedanta may be used as a financing vehicle for Volcan."

Vedanta Resources is a wholly owned by Volcan Investments Ltd. Founder chairman Anil Agarwal and his family are the key shareholders of Volcan.

On 31 January, Vedanta's 50.1 percent-owned subsidiary, Vedanta Ltd, announced that its wholly owned subsidiary Cairn India Holdings Limited (CIHL) made a deferred investment in a structured product issued by Volcan.

In addition to an immediate cash outflow of $208 million in December 2018 to Volcan, CIHL has committed to make deferred payments aggregating $353 million until October 2020.

First Published:Feb 4, 2019 4:07 PM IST