Moody's Investors Service has downgraded the corporate family rating (CFR) of Vedanta Resources Ltd., the parent company of India-listed Vedanta Ltd. over elevated risks of debt restructuring over the next few months.

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The Corporate Family Rating of Vedanta Resources has been downgraded to Caa2 from Caa1.

Additionally, the rating on the senior unsecured bonds issued by Vedanta Resources Ltd. and those by its wholly-owned subsidiary have also been downgraded to Caa3 from Caa2. The bonds issued by the wholly-owned subsidiary, Vedanta Resourcs Finance II Plc. are guaranteed by Vedanta Resources Ltd.

Outlook on these ratings has been maintained as Negative.

Moody's Investors Service defines a Caa3 rating as one judged to be highly speculative and with the likelihood of being near or in default but some possibility of recovering principal and interest.

A Caa2 rating is within speculative grade and is judged to be of poor standing and subject to very high credit risk.

"The downgrade reflects elevated risk of debt restructuring over the next few months, because Vedanta Resources Ltd. has not made any meaningful progress on refinancing its upcoming debt maturities, particularly the $1 billion bonds that mature in January 2024 and August 2024," Kaustubh Chaubal, a Moody's Senior Vice President and lead analyst on Vedanta Resources Ltd. wrote.

Vedanta's parent company faces repayment of notes worth nearly $2 billion in the financial year 2025. Including these bonds, the company is facing debt repayment worth $3.6 billion in the next financial year, according to Kotak Institutional Equities.

Moody's Investors Service wrote in its note that Vedanta Resources' credit quality is constrained by weak liquidity due to its large refinancing needs and tightening financing conditions in the global market.

As of March 2023, the parent's debt/EBITDA stood at 3.7 times. Last month, Twin Star Holdings, one of the promoter entity sold over 4 percent stake in Vedanta Ltd. via block deals. Last week, it also approved raising up to Rs 2,500 crore via Non-Convertible Debentures as part of its refinancing exercise.

The ratings agency also highlighted the parent company's limited financial flexibility to raise financing. Vedanta holds a 64.92 percent stake in Hindustan Zinc, which has two-thirds of the group's consolidated cash. However, with most of that stake being pledged already, the parent is left with limited options.

"Vedanta Resources Ltd.'s concentrated ownership with the sole shareholder, Volcan Investments, keeps the risk elevated for related party transactions to the detriment of creditors. In addition, several senior management departures in recent years pose risks to continuity and stability of its operations," Moody's Investors Service wrote.

Scenario's For Potential Ratings Upgrade:

- Moody's said it is unlikely to upgrade ratings or revise outlook to stable prior to the company substantially improving its liquidity profile.

- Potential rating upgrade will depend on the company meeting refinancing needs over at least the upcoming 12-18 months as well as establish a sustaninable capital structure.

However, further downgrades are also possible if the parent fails to make progress on funding arrangements to service the debt such that the risk of default increases materially.

Shares of Vedanta Ltd. ended 0.2 percent lower on Tuesday at Rs 224. The stock is near its 52-week low and has declined nearly 30 percent so far this year.

First Published:Sept 26, 2023 5:25 PM IST