Vedanta Ltd.'s shares fell to their lowest level in 14 months after Moody's downgraded the corporate family rating of parent Vedanta Resources Ltd.
Moody's lowered the rating to 'Caa2' from 'Caa1' while maintaining a 'negative' outlook. The downgrade is on account of the weak liquidity of Vedanta Resources because of large refinancing needs and interest expenses amid tightening financing conditions in global capital markets.
"The downgrade reflects elevated risk of debt restructuring over the next few months because VRL has not made any meaningful progress on refinancing its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024," said Kaustubh Chaubal, senior vice president and lead analyst on VRL at Moody's.
The potential contagion risk from the parent company's debt issues may impair the ability of Vedanta and Hindustan Zinc Ltd. to raise funds to distribute dividends, according to Moody's. In the first quarter of FY24, Vedanta paid an interim dividend of Rs 18.5 per share, amounting to a Rs 6,877 crore outflow.
In August 2023, Vedanta Resources sold a 4.3% stake in Vedanta for $500 million to reduce the pressure arising from its imminent cash needs.
Shares of the company fell 6.25%, the lowest since July 6, 2022, before paring loss to trade 4.78% lower at 9:44 a.m., compared to a 0.27% decline in the NSE Nifty 50.
The stock has fallen 30.79% on a year-to-date basis. The total traded volume stood at 8.2 times its 30-day average. The relative strength index was at 21, implying that the stock may be oversold.
Of the 14 analysts tracking the company, three maintain a 'buy' rating, five recommends a 'hold', and six suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies a potential upside of 26.5%.
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