Vedanta Resources Plc, which owns Vedanta Ltd, had its credit rating lowered to B from B+ by Standard & Poor’s Ratings Services following weakening financial position and refinancing risk of the London-based oils and metals company that has most of its operations in India.
The Bombay Stock Exchange–listed Vedanta Ltd controls Cairn India, Hindustan Zinc Ltd, Bharat Aluminium as also Sesa Goa Iron Ore, Sterlite Copper and other companies across the globe including Africa and Australia.
The group has exposure to metals including zinc, copper, silver, aluminium, steel, oil and gas, and electricity. A global commodities down-cycle is hurting companies across metals and other natural commodities. In India, companies such as Tata Steel, Bhushan Steel, Hindalco, Hindustan Zinc Ltd have suffered because of dumping by China and a drop in price of various metals to multi-year lows.
Shares of Vedanta on the BSE plunged to quarter of its value over the past year from its 52-week high of Rs 233.45 to about Rs 58.10. Its shares currently trade at around Rs 74.65.
"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."
Vedanta Resources, holding company of the group, has low flexibility, limitations on cash flow fungibility between companies due to the organization structure, and Indian regulations, and weakening access to non-Indian banks, S&P said from Singapore.
It faces refinancing risks and potential liquidity risk, following the slower than expected progress on refinancing of its $1.35 billion debt maturing in 2016, and other pressures from earlier commitments. Vedanta Resources already faces the risk of breaching two financial covenants in its loans, for which it has requested banks for waivers and relaxations.
Yet, S&P exuded optimism the company will be able to make some progress.
"We 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 of about $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," it said.
Over the next two years, S&P expects Vedanta Resources to improve its operating performance, mainly on account of commissioning of a 1.3 million ton aluminium plant in India and turnaround of Zambian copper business and up-pick in commodities prices.
