Vedanta Resources Ratings Upgraded To B2 And Bonds To B3 By Moody's; Outlook Stable

Moody's Ratings has upgraded Vedanta Resources Ltd.'s corporate family rating to B2 from B3 after VRL's successful liabilities management exercises that has solidified its access to capital markets.

Moody's has upgraded to B3 from Caa1 the rating on the senior unsecured bonds issued by VRL and VRL's wholly owned subsidiary, Vedanta Resources Finance II Plc, which are guaranteed by VRL, the ratings agency said in a release on Wednesday. "We have maintained a stable outlook on the entities."

"The rating upgrade follows VRL's successful liabilities management exercises, with the company raising $800 million in its second bond issuance since September 2024," Nidhi Dhruv, senior credit officer at Moody's, said in a statement on Wednesday.

VRL's recent liabilities management initiatives — which encompass debt reduction and refinancing using proceeds from newly issued bonds, dividends received from subsidiaries and proceeds from the sale of stakes in subsidiaries — have led to significant debt reduction and extension of debt maturity profile at the holding company.

The debt at VRL's holding company level reduced to $4.8 billion as of September 2024 from $9.1 billion as of March 2022, according to Moody's.

The company's B2 CFR reflects its large-scale and diversified low-cost operations; exposure to a wide range of commodities like zinc, aluminum, iron ore, oil and gas, steel and power; strong position in key markets, enabling it to command a pricing premium; and a history of relative margin stability through commodity cycles.

Moody's forecasts for VRL are based on the price sensitivities for metals. As for oil and gas, its forecasts are based on a crude oil assumption of $55–75 per barrel.

These price sensitivities will translate into a consolidated adjusted Ebitda of $5.3–5.4 billion and cash flow from operations of $2.8–3 billion for the current and the next financial years. "The company's annual capital expenditure of $2.5 billion will likely require it to raise some additional borrowings, especially since we expect the holding company to receive $1.3–1.6 billion in annual cash dividends from its operating subsidiaries," the ratings agency said.

VRL's senior unsecured bonds are rated B3, one notch lower than the B2 CFR, reflecting Moody's view that bondholders are in a weaker position relative to the operating subsidiaries' creditors.

"We estimate the operating company's claims are around 75% of total consolidated claims as of March 2024, with the remaining claims distributed across VRL and its intermediate holding companies that have a direct shareholding in VDL," Moody's said.

The rating outlook is stable, reflecting Moody's expectation that VRL will address its debt maturities, in particular its next bond maturity in April 2026, in a timely manner, especially given its recent track record of tapping the dollar bond market.

Shares of Vedanta closed 0.54% lower at Rs 445.80 apiece on the National Stock Exchange, compared to a 0.33% advance in the benchmark Nifty 50.