India Ratings and Research (Ind-Ra) has revised the outlook for Vedanta Ltd (VDL) to stable from negative and also affirmed the company's long-term issuer rating.
The long-term issuer rating of the company is 'IND AA-'. Instruments with rating 'IND AA' carry very low credit risk.
"The outlook revision reflects the VDL group's improved liquidity position, supported by the moderated refinancing risks at VRL (Vedanta Resources Ltd). The liquidity improvement resulted from VDL's improved operational cash flows in 2HFY21, supported by its enhanced volume performance, cost improvements and a sharp recovery in metal prices," Ind-Ra said in a statement this week.
However, Ind-Ra has said that it believes despite VDL's likely healthy operating performance over FY21-FY22, the group's ability to reduce debt will remain limited, considering the substantial dividend cash leakages in the current group structure.
This remains the key risk to VDL's financial flexibility despite the near-term improvement in the overall financial leverage and easing off of refinancing risks.
The group's in-progress strategic plans to increase its equity stakes in VDL could increase the group's leverage over the short term. However, it would also reduce dividend cash leakages and facilitate medium-term debt reduction.
Ind-Ra will monitor such developments and evaluate the ratings based on the contours of the financing and the structure, it said.
Vedanta Ltd, a subsidiary of Vedanta Resources Ltd, is one of the world's leading diversified natural resource companies with business operations in India, South Africa, Namibia, and Australia.
Vedanta is a leading producer of oil and gas, zinc, lead, silver, copper, iron ore, steel, aluminium and power.