The financial performance of Vedanta Resources is expected to remain weak for the next 12 to 18 months as low commodity prices and weak prospects in the oil & gas sector have adversely impacted its cash flows, Standard & Poor's (S&P) Ratings Services said on Tuesday.
The agency said lowering of oil price projections have also hurt the Anil Agarwal-led firm's cash flows.
"We downgraded Vedanta Resources because we expect the company's financial performance to remain weak for the next 12-18 months," S&P's Credit Analyst Mehul Sukkawala said in a statement.
Low commodity prices, including the agency's recent lowering of oil price forecast, have hurt the London Stock Exchange-listed company's cash flows, which were already stretched by the high debt levels, he added.
S&P Ratings Services also lowered foreign currency long-term corporate credit rating on Vedanta Resources PLC to 'B+' from 'BB-'.
"The outlook is negative. At the same time, we lowered our long-term issue ratings on the notes and loans that the company issued or guarantees to 'B+' from 'BB-'. We removed all the ratings from CreditWatch, where they were placed with negative implications on September 9, 2015," it said.
On negative outlook, Sukkawala said it reflects the risk that Vedanta Resources' financing for its upcoming maturities could be delayed.
"It also reflects the risk of commodity prices remaining weak for a prolonged period, resulting in the company's financial ratios not recovering in line with our expectations of FFO cash interest coverage rising above 1.75x in fiscal 2017," he added.
The agency said it expects Vedanta Resources' financial ratios to remain weak for the 'BB-' rating irrespective of whether the firm is successful in completing the merger between its intermediate holding company Vedanta and its subsidiary Cairn India.
"Vedanta Resources is dependent on banks to roll over its short-term debt and to help refinance the $ 2 billion of maturities in June/July 2016," S&P said.
"We believe Vedanta Resources has decent banking relationships and Vedanta Ltd has good credit standing in India, which will help Vedanta Resources roll over its short term debt and meet its near-term refinancing requirements," it added.
The agency said it expects the firm to successfully renegotiate its $1.4 billion loan in case of a merger with Cairn India - the loan is secured against about 35 per cent of Cairn India shares.
"We also anticipate that Vedanta Resources will extend a $1.25 billion loan from Cairn India due in mid-2016," S&P said.