Crisil revises Vedanta’s NCD, long-term bank facilities to negative

Crisil Ratings has revised the outlook of Anil Agarwal-controlled Vedanta’s non convertible debentures (NCDs) and long-term bank facilities to negative from stable, citing higher financial leverage and lower financial flexibility.

“The revision in outlook reflects possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to one-year maturities for fiscals 2023 and 2024. This is due to increased cash outflow from Vedanta, in the form of dividends, towards large maturing debt obligations at its parent company, Vedanta Resources Ltd (VRL), it said in a statement.

“This is owing to increased refinancing risk at VRL and moderating operating profitability of Vedanta,” it added.

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Crisil Ratings has revised the rating of ₹6,444 crore and ₹3,000 NCDs to negative, while it reaffirmed a ‘AA’ rating. It reaffirmed a A1+ rating for ₹10,000 crore commercial paper and short-term loan facilities.

VRL has annual debt maturities of about $3 billion each in fiscals 2024 and 2025, with high near-term maturities of $1.7 billion in the first quarter of fiscal 2024. The company is in discussion with lenders for refinancing upcoming maturities of first quarter of fiscal 2024 and the same is expected to be completed by end of March 2023 or early April 2023, it said.

“The progress on the refinancing plans have been slower than expected, thereby resulting in increased dividend payout by Vedanta and reduced cash and cash equivalents during the fiscal. Including the recent dividend announced by Vedanta’s subsidiary Hindustan Zinc Ltd, dividend payout by Vedanta for fiscal 2023 will be more than ₹40,000 crore (highest ever, including dividend payout by HZL to its minority shareholders),” it said, adding this is expected to result in cash balance of less than ₹20,000 crore for March 2023 against more than ₹30,000 crore in March 2022.

In case of any further delay in the expected refinancing plan, dependence on dividend pay outs by Vedanta will increase. Vedanta currently has cash balances only to cover for VRL’s maturities for the first half of fiscal 2024, and hence will be a key rating sensitivity factor.

“VRL will look to part refinance and part repay the maturities beyond the first half of fiscal 2024 as well. However timely closure (at least 3-6 months before) of a credible refinancing and repayment plan for maturities of the second half of fiscal 2024 and thereafter, will be a key monitorable as VRL faces significant refinancing risk till fiscal 2025,” it said.