Moody’s places Vedanta under review for downgrade

By: |
March 25, 2020 3:40 AM

The ratings firm said that it could downgrade the ratings if Vedanta’s earnings and financial metrics are unlikely to recover to levels supportive of its present ratings and pre the current coronavirus outbreak.

The ratings outlook was changed to ratings under review from stable.The ratings outlook was changed to ratings under review from stable.

Moody’s Investors Service has placed Vedanta Resources’ B1 corporate family rating (CFR) under review for downgrade. The ratings firm has also placed under review for downgrade the B3 ratings on the senior unsecured bonds issued by Vedanta and those issued by its wholly-owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by Vedanta.

The ratings outlook was changed to ratings under review from stable.

Moody’s review for downgrade will focus on COVID-19 outbreak’s impact on Vedanta’s operations in light of increasing restrictions on people’s movement and the potential for a shutdown of operations to ensure employee safety. It will also assess the impact of the outbreak on oil and base metal prices; Vedanta’s asset base, cost structure, likely cash burn rate and liquidity, as well as management’s strategy for coping with prolonged, low and volatile commodity prices.

The review will take into consideration the impact of potential counter-measures such as capex deferment and reduced dividends; and Vedanta’s resilience in various stress-testing scenarios, including in particular its ability to refinance its $1.9 billion of debt securities via the capital markets and bank debt.

The ratings firm said that it could downgrade the ratings if Vedanta’s earnings and financial metrics are unlikely to recover to levels supportive of its present ratings and pre the current coronavirus outbreak.

Specific credit metrics that Moody’s would consider include Vedanta’s debt to Ebitda (earnings before interest, tax, depreciation and amortisation) remaining above 4.5x; Ebit to interest coverage failing to improve above 1.5x; or Ebit margin falling below 15%.

Vedanta’s failure to complete the refinancing of its debt maturities at least 12 months ahead of scheduled maturities will also stress its ratings.

Ratings firm observed that the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.

Kaustubh Chaubal, lead analyst for Vedanta said, “The review for downgrade reflects our expectation that low oil and base metal prices will significantly strain Vedanta’s financial metrics, at least through the fiscal year ending March 2021”.

Delisted from the London Stock Exchange in October 2018, Vedanta Resources is now wholly owned by Volcan Investments Ltd. For the 12 months to September 30, 2019, Vedanta Resources generated revenues of $13.7 billion and adjusted Ebitda of $3.3 billion.

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