India Ratings and Research (Ind-Ra) has recently lowered Vedanta Ltd’s (VDL) Long-Term Issuer Rating from “AA” to “AA-,” citing concerns over heightened liquidity risk and constrained financial flexibility. The primary trigger for this downgrade was the delay in securing refinancing. This rating revision also comes with Negative Implications, marking a notable shift from the previous Negative Outlook.
Comprehensive Evaluation of VDL Group
Ind-Ra maintains a holistic view when assessing VDL and its subsidiary entities, collectively referred to as the VDL group. This approach is grounded in the interconnectedness of their strategic, operational, and financial facets. In the rating determination process, the agency takes into account the debt held by the parent company, Vedanta Resources Limited (VRL).
Factors Contributing to the Downgrade
The downgrade is further compounded by VDL’s underwhelming cash accruals, which stem from shifts in the commodity cycle. Additionally, the elevated borrowing cost associated with the recent bond issuance has put added pressure on the company’s finances. These factors have raised concerns about VDL’s liquidity position and its ability to support VRL.
Uncertainty Surrounding Restructuring
The decision to place the ratings on Rating Watch with Negative Implications is a response to the preliminary approval from the board of directors to split VDL’s current business into six individual listed entities within the next 12-18 months. This move positions VRL as the overarching holding firm.
Awaited Demerger Details
Ind-Ra is eagerly anticipating specific details from VDL regarding the potential repercussions of this proposed demerger on its liquidity and credit standing. A complete breakdown of assets and liabilities in this context has yet to be disclosed.
Prospects and Challenges of the Restructuring
While the proposed restructuring offers opportunities for asset monetization across distinct verticals, it could also lead to enhanced structural subordination at VRL, particularly after the asset monetization. Ind-Ra will diligently assess the demerger specifics once they become available, with a keen focus on the potential implications for VDL’s credit profile.
