Standard & Poor’s Ratings Services said on Wednesday that it had lowered its foreign currency long-term corporate credit rating on Vedanta Resources and the long-term issue ratings on the company’s guaranteed notes and loans to ‘B’ from ‘B+’. “We also placed all the ratings on CreditWatch with negative implications,” it said.
“We downgraded Vedanta Resources because we expect the company’s financial performance to remain weak for the next 12-15 months,” said Standard & Poor’s credit analyst Mehul Sukkawala. “Low commodity prices have hurt Vedanta Resources’ cash flows, which were already weakened by the company’s high debt. In addition, we placed the ratings on CreditWatch with negative implications to reflect the refinancing risk for Vedanta Resources’ mid-2016 debt maturities due to its complex organization structure. The risk further increases on account of covenant pressures.”
S&P said that Vedanta Resources increasingly faces refinancing risk. This is because of low financial flexibility at the ultimate holding company (Vedanta Resources), limitations on cash flow fungibility between companies due to the organization structure and Indian regulations, and weakening access to non-Indian banks. The company has $1.35 billion of debt outstanding of the $1.9 billion maturing in mid-2016.
According to it, Vedanta Resources already faces the risk of breaching two financial covenants in its loans, for which it has requested banks for waivers and relaxations.
“However, the company has made progress in addressing the risk. We also believe the access to short-term working capital facility from Indian banks will help Vedanta Ltd tide over any potential refinancing risk for the local commercial paper market (currently $1.5 billion outstanding) stemming from its weakening credit profile. We also believe Vedanta Ltd will be able to rollover the $1.25 billion loan from subsidiary Cairn India Ltd due in mid-2016,” S&P said.