While Moodys lauded the groups long-term planning in developing mineral assets and its ability to execute its capex plans on time, the firm criticised Vedantas weak balance sheet and debt maturity profile.
The long-term nature of the assets contrasts with the weak liquidity and relatively ad hoc nature of its debt maturity profile, Moodys analysts led by Alan Greene, vice-president - senior credit officer, said in a client note. Moodys has a Ba1 rating on Vedantas corporate family and a Ba3 rating on the groups senior unsecured debt. Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
Moodys blames Vedantas thirst for leveraged acquisitions in part for what it calls short-termism, as it has led to copious bridge funding needs. While short-term debt is cheaper, it creates refinancing risk.
If the search is always for the cheapest debt funds, to be serviced by a reliance on the cyclical nature of commodity cash flows, and with an aversion to raising new equity, then refinancing risk is never far away, the ratings firm said.
Key forthcoming refinancing requirements are all at the groups holding company, Vedanta Resources. In late April, $883 million falls due, if the convertible bond put is exercised, while in early June, $1.47 billion loan related to its takeover of Cairn India is due. In mid-January next year, a further $500 million of bonds mature.
While the group had cash on hand of $7.2 billion as of September 2012, around half of that lies in Hindustan Zinc and is inaccessible for group use.
On a brighter note, Moodys said cash flow growth and increased production from CIL are among considerations that could lead us to stabilise the outlook on Vedantas rating. The groups oil and gas interests are represented by its 58.8% stake held in Cairn India, acquired over a 16-month period with consolidation achieved in December 2011. CIL now contributes over 50% to group Ebitda.
Moodys also signalled disappointment with the groups weak financial performance in the latest reported quarter. Earnings Ebitda fell to $1.11 billion in the third quarter, from $1.22 billion in the preceding three month period.