Moody’s rates Vedanta arm’s dollar bonds B3 with negative outlook

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August 12, 2020 8:51 AM

The outlook on the rating is negative, the credit rating agency stated. The firm is likely to tap the dollar bond market in the coming weeks, bankers indicated.

Moodys, Vedanta arm, Vedanta Resources, Vedanta Holdings Mauritius II, corporate family rating, Special Economic Zone, adani zones, Manappuram Finance,The outlook on the rating is negative, the credit rating agency stated. (Reuters photo)

Moody’s Investors Service has assigned a B3 rating to the proposed dollar bonds to be issued by Vedanta Holdings Mauritius II, a wholly-owned, step-down subsidiary of Vedanta Resources (VRL). The outlook on the rating is negative, the credit rating agency stated. The firm is likely to tap the dollar bond market in the coming weeks, bankers indicated. VRL is in the process of fully privatising its key operating subsidiary, Vedanta Limited (VDL), by increasing its stake to 100% from 50.1% and delisting the company. The proposed notes will fund the transaction, Moody’s said.

“The bonds will likely have a short tenor of close to three years. We may see the issue hit the market in coming weeks,”said a banker aware of the deal. FE could not independently verify the same. Kaustubh Chaubal, vice-president and senior credit officer at Moody’s, said the bonds were rated two notches lower than the company’s corporate family rating (CFR), reflecting the complex group structure, with VRL having less than 100% ownership in key operating companies and bondholders’ legal and structural subordination to claims at the operating company level.

“Additionally, the privatisation of VDL will not completely alleviate risk for creditors of the holding company, who remain legally and structurally subordinated to claims at the operating companies,” Chaubal added. Moody’s said it viewed the privatisation as credit positive and a major step in simplifying the complex group structure of VRL, whose less than 100% ownership in its operating subsidiaries had historically hindered its credit profile. “The privatisation will enable VRL to better access future cash surpluses, as well as cash of around $1.7 billion held at VDL and its wholly-owned subsidiary, Cairn India Holdings,” Moody’s stated.

Foreign currency bond issuances out of India had slowed down after the pandemic outbreak and its related crisis since March. Indian issuers raised close to $10 billion from the overseas bond market so far in 2020. The pace of fund raising was strong in the first three months of the year, when Indian firms raised a record $8 billion.

Adani Ports and Special Economic Zone, REC and UPL have hit the dollar bond market after the Covid-19 crisis-led halt. Exim Bank and Adani Electricity Mumbai raised a billion dollar each earlier this year from the foreign currency bond market.

Other entities to hit the overseas bond market this year include Manappuram Finance, Shriram Transport, Future Retail, Power Finance Corporation, IRFC, etc.

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