Vedanta Tanks 6%, Hits 52-Week Low After Moody’s Rating Downgrade

Vedanta Shares Decline: Shares of Vedanta tumbled 6.25 per cent to Rs 210 apiece on the BSE on Wednesday after Moody’s Investors Service downgraded the corporate family rating for Vedanta Resources Limited (VRL) to ‘Caa2’ from the earlier ‘Caa1.’

In the past three months, Vedanta stock has slipped 24 per cent as against 5 per cent rise in the benchmark Sensex. Earlier, the stock had touched a 52-week low of Rs 222 apiece on September 22.

Additionally, Moody’s has also downgraded rating on senior unsecured bonds to Caa3 from Caa2, issued by Vedanta Resources Limited (VRL) and those issued by VRL’s wholly-owned subsidiary, Vedanta Resources Finance 11 Plc, and guaranteed by VRL. At the same time, they have maintained a ‘negative’ outlook.

“The downgrade reflects elevated risk of debt restructuring over the next few months because VRL has not made any meaningful progress on refinancing its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024,” said the ratings agency.

It is to be noted that Vedanta Resources faces repayment of notes worth nearly $2 billion in the financial year 2025. Including these bonds, the company is facing debt repayment worth $3.6 billion in the next financial year, as per Kotak Institutional Equities. As of March 2023, Vedanta’s debt/EBITDA stood at 3.7 times.

“The downgrade reflects elevated risk of debt restructuring over the next few months because VRL has not made any meaningful progress on refinancing its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024,” says Kaustubh Chaubal, a Moody’s Senior Vice President and lead analyst on VRL.

“VRL’s consolidated debt/EBITDA leverage was 3.7x as of March 2023 – substantially strong for its Caa category CFR. Still, the company continues to face challenges in refinancing its debt, a reflection of reduced appetite from the lending community, and a key credit concern,” Moody’s said in its note.

Moody’s said VRL sold a 4.3 per cent stake in August 2023 in key subsidiary Vedanta Limited (VDL) for around $500 million to stave off some of the pressure arising from the holdco’s imminent cash needs.

Given that its entire shareholding in VDL and that VDL’s entire 64.9 per cent shareholding in Hindustan Zinc Limited (HZL), which holds around two-thirds of the group’s consolidated cash, have already been pledged, this implies VRL has limited financial flexibility to raise financing.

The negative outlook reflects VRL’s persistently weak liquidity profile and Moody’s concerns over the company’s ability to address the imminent cash needs, especially at the holdco, Moody’s said.

Last week, on September 21, Vedanta’s board of directors approved to raise Rs 2,500 crore on a private placement basis, as non-convertible debentures (NCDs). The company said that the fund-raising was part of its routine refinancing undertaken in the ordinary course of business.

Earlier, in March, Crisil downgraded its outlook from stable to negative due to the possibility of higher-than-expected financial leverage and lower financial flexibility of the company.