Slow debt repayment credit negative for Vedanta: S&P

NEW DELHI: Standard & Poor's (S&P) today said there are negative implications on Vedanta Resources's long- term credit rating due to slow progress in re-financing the debt of the London-listed mining major.


The rating agency said it had placed its 'BB' foreign currency long-term corporate credit rating on Vedanta Resources on credit watch with negative implications.

"We also placed our 'BB' rating on Vedanta's outstanding issuances on credit watch with negative implications," S&P said in a statement.

It quoted its Credit Analyst Vishal Kulkarni as saying that "we placed the ratings on CreditWatch because Vedanta's refinancing of its large upcoming debt maturities is delayed."

He said: "We understand that the company has tied up the majority of the funds for its USD 809 million debt maturing April 29 and is tying up the rest. Vedanta is in process of securing funding for USD 1,350 million debt due June 6, 2013."

The rating agency said Vedanta's ability to tie-up sizeable funding to refinance its maturities will continue to be tested in the next 18 months, even if the company can refinance its April and June 2013 maturities.

It said it expected the company to eventually garner funding for the debt maturities.

However, Vedanta's inability to plan and execute a strategy to diversify funding sources, lengthen maturities, and improve its "less than adequate" liquidity, as defined in our criteria, could pressurise the rating further, it added.

"We expect Vedanta's access to cash (of USD 7.2 billion on a consolidated level as of September 30, 2012) and cash flow from ongoing operations of its subsidiaries in India to remain difficult," it said.

This is because sizeable cash leakages in the form of dividends to minority shareholders and taxes provide disincentives to Indian companies to declare dividends to the holding company.

The statement said since Vedanta acquired India-based oil company Cairn India in December 2011, dividends received by the parent company form only a small part of its large debt servicing needs.

The holding company does not maintain any credit lines and therefore needs to rely on external sources of funding for refinancing.

"We expect to resolve the Credit watch after we review Vedanta's plan to refinance debt maturities due in April and June, and assess the company's financial management strategy," Kulkarni said.

S&P said it could lower the rating if the company does not tie up all the funding for April 2013 maturities by April 12, 2013 or fails to finalise funding for its June, 2013 maturity at least a month before the maturity date.

It added that it could affirm the rating in case Vedanta adopts strategy to refinance debt and improve liquidity at the holding company and maintains its "fair" business risk profile.