Moody's Lowers Vedanta Resources' Rating, Flags Rising Refinancing Risks

Global rating agency Moody's downgraded Vedanta Resources Ltd's (VRL) corporate family rating (CFR) on Friday, from "B3" to "Caa1", on increasing refinancing risk surrounding the holding company.

The outlook on all ratings remains negative.

"Ongoing delays in holding company VRL's refnancing efforts and its continued reliance on dividend receipts are depleting liquidity at its operating subsidiaries," said Kaustubh Chaubal, Senior Vice-President, Moody's, in a statement.

Holding company VRL's cash needs for the fiscal year ending March 2024 (FY24) remain large. They include cross-border bonds of $400 million and $500 million due in April and May 2023, respectively, and a $1 billion bond maturing in January 2024.

The agency said it expected VRL to find sufficient funds through loans and dividends to address its debt maturities until June 2023.

"However, VRL faces ongoing delays in obtaining funds relative to our earlier expectations amid a funding environment that remains challenging with high interest rates, scarce market liquidity and tight credit availability," said Chaubal. "These issues expose the company to material refinancing risks and exacerbate the likelihood of a payment default or a distressed exchange."

Moody's notes that VRL has paid down around $2 billion of its debt during fiscal 2023. However, the agency considers that maintaining liquidity and proactive liability management are more pertinent in preserving the holding company's credit quality, as opposed to debt reduction.