Moody's upgrades Vedanta rating to B1 and the company's senior unsecured rating to B3

KOLKATA: Moody's Investors Service upgraded Vedanta Resources plc's corporate family rating to B1 from B2 and the company's senior unsecured rating to B3 from Caa1. The upgrade of the ratings reflects Moody’s expectation of the relative improvement in commodity prices and the resultant increase in Vedanta’s earnings and cash flow.

"The upgrade reflects Moody’s expectation of a relative improvement in commodity prices and resultant increase in the company’s earnings and cash flow," said Kaustubh Chaubal, a Moody's vice president and senior analyst said in an statement, terming the rating outlook as 'stable.'

It also marks Vedanta's progress in reducing absolute debt levels, high probability of a successful merger of Vedanta Ltd and Cairn India Ltd, improving group liquidity and enhanced financial flexibility, which in Moody's view, could result in debt reduction, further improving leverage, he added.

"In our view, the sharp price deterioration for major base metals — aluminum, copper, nickel and zinc — seen in late 2015 and early 2016 has likely bottomed. While we do not expect material improvements from current price levels over the next 12-18 months, prices are unlikely to deteriorate further over the medium term, given the various growth and stimulus measures enacted in China to offset its decelerating GDP trajectory," Moody's said.

It added that Vedanta has made significant progress in reducing absolute debt levels and alleviating near-term refinancing risk through its receipt of a large special dividend of $1 billion from cash rich Hindustan Zinc.

"With access to Cairn India's cash and future cash flow, we expect Vedanta to apply a part of it towards retiring some of the group's debt, thereby reducing leverage, or enhancing liquidity across the group, particularly at Vedanta Resources plc.", Moody's added.

Moody's said the proposed Vedanta-Cairn India merger was a major step in simplifying Vedanta's complex structure and, in particular, in addressing some of the risks associated with the gro-up's thinly capitalized but highly leveraged parent company.

Vedanta's ratings continue to be supported by its low-cost operations, business diversity, as reflected by its presence in the copper, zinc, aluminum, iron ore, oil and gas, and power businesses and improving leverage and interest coverage resulting from stabilizing commodity prices and debt reduction.

Other factors include Vedanta's commitment to reduce absolute debt levels and simplify its corporate structure and its track record in implementing capacity expansions.