S&P Global Cuts Vedanta Resources Ratings To ‘CCC’ On Potential Bond Extensions

S&P Global Ratings downgraded Vedanta Resources Ltd., the parent of Vedanta Ltd., deeper below the lowest investment grade citing the possibility of "distressed" debt refinancing.

The rating firm downgraded Vedanta Resources long-term ratings to ‘CCC’ from ‘B-‘ and placed it on credit watch with negative implications, according to its statement. The rating action is based on Vedanta's plans to undertake a liability management exercise for its upcoming bond maturities in January 2024.

S&P action underscores concerns over debt, that have prompted billionaire Anil Agarwal to shake up India-listed Vedanta Ltd. It will split into six listed companies, allowing him to unlock value and draw investors to individual companies for aluminium, oil and gas, power, steel, and metal businesses.

London-based parent Vedanta Resources has initiated talks with bondholders to help address the company's bond maturities of about $3 billion, including $1 billion in January 2024, S&P said. “We believe Vedanta Resources remains committed to avoiding a payment default. We could assess such a liability management transaction to be distressed.”

While the company’s limited alternate sources of funding add to downside risks, the payment of the January bond is highly likely, S&P said. “In the absence of an immediate liability management exercise, we believe the company will be able to meet payment of the US $1 billion bond in January 2024."

Vedanta Resources has partly addressed the maturity of the bond through the sale of about 4% stake in subsidiary Vedanta Ltd. in August.

However, the ratings agency said the sources for the remaining funds of around $600 million are still not in place. Hence, the company may depend on events such as transfer of general reserves to retained earnings at its subsidiary Hindustan Zinc Ltd. to redeem the bonds, or may look at further sale of assets, it said.

“The presence of further large maturities following the January bond maturity could make liability management a preferred option, rather than paying down the January bond,” the rating agency said.

The credit watch placement reflects the likelihood of further rating downside over the next three months, especially if the liability management exercise is considered distressed.

“Such transactions at the lower end of the 'B' rating category are often classified as distressed. This is because of the potential for a conventional default, absent the exchange, and the terms of the transaction,” S&P said.