Rating agency Moody’s changed Vedanta Resources Ltd (VRL) outlook to negative from ratings under review after their review for downgrade initiated in early December 2020. The corporate family rating was confirmed at B2 and its senior unsecured bonds at Caa1. Holding company VRL has a sizeable $3.3bn debt maturing between April 2021 and September 2022 and annual interest payments of $660mn. VRL had issued $1bn in dollar bonds in last December to repay debt and reduce immediate refinancing needs – Moody’s expects the remaining proceeds, the dividends from 55.1% subsidiary Vedanta Ltd and 64.9% subsidiary Hindustan Zinc Ltd to be sufficient to meet only around 65% of VRL’s cash needs for the 18 months till September 2022. Also, Moody’s sees limited evidence of recent bank support to refinance VRL’s upcoming maturities. They also highlight VRL’s continued reliance on the dollar bond markets for funding as opposed to bank loans as a rising risk due to the expensive pricing on these deals – VRL’s recent issuance in December 2020 was priced at a yield/coupon of 13.875%. Also, VRL’s complex organizational structure with a less than 100% stake in key operating subsidiaries has been seen by Moody’s as a key credit weakness. “The negative outlook primarily reflects holdco VRL’s ongoing weak liquidity and challenges it faces for refinancing the holdco’s upcoming significant debt maturities,” said Kaustubh Chaubal, VP at Moody’s and their lead analyst on VRL. With the outlook, Moody’s mentioned that upward ratings pressure is limited and could be stabilized if they increase shareholding in Vedanta Ltd to atleast 65% and complete refinancing in a timely manner at the holding company level. VRL’s recent USD 13.875% 2024s were flat at 111.59, yielding 9.19%.
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