S&P Global Ratings warns of possible downgrade of Vedanta Resources: Report

Billionaire Anil Agarwal-led Vedanta Resources might face some trouble yet again. S&P Global Ratings, in its recent note, has said that any changes in Vedanta Resources’ financial policy regarding debt transactions may result in a potential downgrade of its current ‘B-’ rating to ‘CCC’ or ‘CC’.

It said that the rating can be downgraded if Vedanta tries a debt deal without enough compensation or buys back debt at a lower price than its face value in secondary markets, The Economic Times reported on Friday.

If Vedanta goes through with such a deal, S&P would probably lower Vedanta’s rating to ‘SD’ and the bond ratings affected by this would drop to ‘D’.

The clarification has come following a bondholder identification exercise announced by the company on August 24, 2023.

The report added that Vedanta is currently exploring ways to meet its obligations, but S&P maintains a negative outlook on the company due to potential funding shortfalls.

Earlier this week, Vedanta management met investors in Singapore and Hong Kong and reportedly discussed a potential extension of upcoming bonds through partial bond exchange and partial upfront payment.

In the first week of August, S&P Global Ratings had revised the credit outlook for Vedanta Resources Ltd to negative highlighting increased funding risks. It affirmed the 'B-' rating for the company, which means a relatively higher credit risk.

The negative outlook reflected the company's tight liquidity due to large debt maturities until March 2025, S&P said.

Vedanta Resources’ weakened access to cash flow from its operating subsidiaries at a time of challenging external financing conditions has raised its refinancing risk. The company has about $3 billion of debt and funding gap of $2 billion till August 2024.

The company also has interest expenses of $650 million. The $500 million that Vedanta Resources just raised by selling part of its stake in the 64 per cent-owned Vedanta, together with dividends and brand fees, should meet about half of the above debt-servicing needs.

For the balance, Vedanta Resources will likely need to raise at least $600 million before its $1-billion bond matures in January, and the rest before next August. Vedanta Resources is now more exposed to funding risk given the significantly-reduced dividend capacity of Vedanta Ltd.

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