Moody’s Investors Service has downgraded Vedanta Resources Limited’s (VRL) corporate family rating (CFR) to Caa1 from B3. Concurrently, Moody’s has downgraded the ratings to Caa2 from Caa1 on the senior unsecured bonds issued by VRL and those issued by VRL’s wholly owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by VRL.
“The rating downgrades reflect the increasing refinancing risk surrounding holding company (holdco) VRL’s large debt maturities. Ongoing delays in holdco VRL’s refinancing efforts and its continued reliance on dividend receipts are depleting liquidity at its operating subsidiaries,” says Kaustubh Chaubal, a Moody’s Senior Vice-President.
VRL’s cash needs for the fiscal year ending March 2024 (fiscal 2024) remain large and include: cross-border bonds of $400 million and $500 million that are due in April and May 2023, respectively, and a $1.0 billion bond maturing in January 2024; an estimated $1.1 billion in term debt; $450 million of an intercompany loan; and an estimated interest bill of at least $600 million.
“We previously expected VRL to find sufficient funds through loans and dividends to address its debt maturities until June 2023. However, VRL faces ongoing delays in obtaining funds relative to our earlier expectations amid a funding environment that remains challenging with high interest rates, scarce market liquidity and tight credit availability,” adds Chaubal who is also Moody’s Lead Analyst for VRL. “These issues expose the company to material refinancing risks and exacerbate the likelihood of a payment default or a distressed exchange.”
Moddy’s said VRL’s liquidity remains weak with management fees and dividends from operating subsidiaries insufficient to meet its looming debt maturities.