India Ratings and Research has downgraded Vedanta Ltd.'s long-term issuer rating to IND AA- from IND AA, while placing it on "rating watch with negative implications".

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This rating action spans proposed and existing Non-Convertible Debentures (NCDs), Commercial Paper, project finance facilities and term loans.

"The downgrade reflects Vedanta's increased liquidity risk and reduced financial flexibility on account of delays in tying up the refinancing for managing its large upcoming bond maturities in January 2024 and financial year 2024, which could potentially impact the company's liquidity and financial flexibility in the interim," the India Ratings' analysts wrote.

In an exclusive interview with CNBC-TV18 after announcing a six-way split for Vedanta Ltd., Group Chairman Anil Agarwal said the financing for the bond maturities is in place and that options of repayment and refinancing are both open.

India Ratings attributed the downgrades to lower-than-expected cash accruals at Vedanta owing to corrections in the commodity cycle together with the higher cost of borrowing for the latest bond issuance, which can impact the company's liquidity cover as well as its ability to support its company Vedanta Resources Ltd.

On Wednesday, Vedanta took its first step towards its proposed demerger of businesses by incorporating its Base Metal subsidiary Vedanta Base Metals, of which Vedanta Ltd. will currently own 100%.

Vedanta's ratings have been placed on "Rating Watch with Negative Implications" in view of this proposed demerger into six standalone listed entities over the next 12-18 months. The agency said that it is awaiting clarity from the mining major on the implications of the demerger on its liquidity and credit profile as the break-up of assets and liabilities has not yet been disclosed.

"While the transaction provides opportunities to monetise assets at each of the individual verticals, it could potentially also increase the structural subordination at VRL post the monetisation of some of these assets," the note said.

India Ratings expects Vedanta to tie up the refinancing over the next two months. However, any delay in the same or the terms of refinancing being detrimental to the company's liquidity and financial flexibility may warrant further negative rating action, it warned.

A few weeks earlier, Moody's Investors Service downgraded the corporate family rating (CFR) of Vedanta Resources Ltd., its parent company, over elevated risks of debt restructuring over the next few months.

First Published:Oct 12, 2023 5:28 AM IST