India Ratings and Research (Ind-Ra) has downgraded Vedanta Ltd’s (VDL), controlled by Anil Agarwal, Long-Term Issuer Rating from “AA” to “AA-” due to heightened liquidity risk and diminished financial flexibility resulting from a delay in securing refinancing. The rating now comes with Negative Implications, changing the previous Negative Outlook.
Ind-Ra consistently takes a consolidated perspective of VDL and its subsidiaries, collectively referred to as the VDL group, owing to their intertwined strategic, operational, and financial ties. In determining the ratings, the agency also incorporates the debt of the parent company, Vedanta Resources Limited (VRL).
The downgrade is further influenced by VDL’s below-anticipated cash accruals caused by shifts in the commodity cycle and an elevated borrowing cost for the recent bond issuance. These factors could potentially affect VDL’s liquidity position and its capacity to support VRL.
The decision to place the ratings on Rating Watch with Negative Implications is a response to the board of directors’ preliminary approval to split VDL’s current business into six individual listed entities within the forthcoming 12-18 months, positioning VRL as the overarching holding firm.
The rating agency is awaiting specific details from VDL concerning the repercussions of the proposed demerger on its liquidity and credit standing since a comprehensive breakdown of assets and liabilities has yet to be revealed.
While the proposed restructuring offers avenues for asset monetisation across distinct verticals, it could also enhance the structural subordination at VRL, especially after the asset monetisation. Ind-Ra will scrutinise the demerger specifics once they’re available to gauge the potential implications on VDL’s credit profile.
First Published: Oct 11 2023 | 9:49 PM IST