Vedanta shares in focus as S&P warns of possible rating downgrade for parent Vedanta Resources

Shares of Vedanta Ltd will be in focus on Friday after a media report suggested that S&P Global Ratings has warned of rating downgrade for parent Vedanta Resources to 'CCC' or 'CC' from 'B-' at present, if there is any change in Vedanta Resources' financial policy regarding debt transactions. This, S&P said, would occur if Vedanta attempts a debt deal without adequate compensation or buys back debt below its face value, the ET reported. Vedanta is currently exploring ways to meet its obligations, but S&P maintains a negative outlook on the company due to potential funding shortfalls, the report added.

As per the report, the rating action will happen if Vedanta tries a debt deal without enough compensation or buys back debt at a lower price than its face value in secondary markets. 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 ET report added.

To recall, S&P Global Ratings had in August revised the credit outlook for Vedanta Resources Ltd to negative, citing increased funding risks. The rating agency affirmed the 'B-' rating for the company, which indicates 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, adding that it estimates the company's funding gap to be $2 billion until August 2024.

Vedanta Resources’ high leverage and funding gap of $3 billion in FY2025 are key areas of concern and overhang, Kotak Institutional Equities said this month. It noted that the Vedanta parent has largely addressed the funding gap of FY2024 through various one-time measures, including a 6 per cent stake sale in Vedanta but said the $2.2 billion bonds maturity in FY2025 is a taller hump.

"We note that large dividends are no longer possible and Vedanta Resources might be forced to further divest stake/assets in Vedanta. The bleak commodity cycle suggests a downside risk to earnings. We have trimmed earnings and fair value to Rs 200 from Rs 215. Maintain SELL, given the unfavorable risk-reward," Kotak said on Vedanta.