Vedanta's plans to manage its liabilities for its upcoming bond maturities led to the downgrading
S&P Global Ratings has downgraded Vedanta Resources Ltd., the parent company of Vedanta Ltd., to a lower investment grade due to concerns over debt refinancing. The rating agency has downgraded Vedanta Resources' long-term ratings from ‘B-‘ to ‘CCC’ and placed it on credit watch with negative implications.
This rating action is based on Vedanta's plans to manage its liabilities for its upcoming bond maturities in January 2024. S&P's decision highlights concerns over debt, which have led billionaire Anil Agarwal to restructure Vedanta Ltd, according to BQ Prime.
The company will be split into six listed companies, allowing investors to invest in individual companies for aluminium, oil and gas, power, steel, and metal businesses. Parent company Vedanta Resources has started talks with bondholders to manage its bond maturities of approximately $3 billion, including $1 billion in January 2024.
S&P believes Vedanta Resources is committed to avoiding a payment default and may undertake a liability management transaction to address this. However, the limited alternate sources of funding add to downside risks. S&P believes that the payment of the January bond is highly likely, even though the company's financial flexibility is limited.
Vedanta Resources has already sold about 4 percent stake in subsidiary Vedanta Ltd. in August to address the bond maturity.
It is probable that Vedanta Resources will have to obtain a minimum of $600 million before its $1 billion bond reaches maturity in January, and the remaining amount before August of next year. The reduced dividend capability of Vedanta Ltd. has made Vedanta Resources more susceptible to funding risk.