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17 Aug 2010
Singapore, August 17, 2010 -- Moody's Investors Service has today placed the Ba1 corporate family and
Ba2 long-term senior unsecured ratings of Vedanta Resources plc
on review for possible downgrade.
This rating review follows the company's announcement of an offer to acquire
a majority 51%- 60% interest in Cairn India Ltd at
an estimated cost of over USD8.5 billion.
Vedanta's operations are currently focused on extractive industries
in India; this deal, if consummated, will represent the
company's first foray into oil and gas exploration and production.
"The rating review reflects Moody's concern that this bold acquisition,
in what will be a new business for the group and likely be majority debt-funded,
will weaken Vedanta's overall credit profile," says
Alan Greene, a Moody's VP/Senior Credit Officer and lead analyst
for the company.
"Although Vedanta's current rating has accommodated bolt-on acquisitions
and capex programmes that offer reasonably swift payback within a framework
of base metal price volatility, the tolerance set for the rating
will struggle to absorb this debt-financed acquisition and the
assumed debt of Cairn India," adds Greene.
Moody's notes that the acquisition is being split between Vedanta and
its 57.5%-owned subsidiary, Sesa Goa.
Moody's remains concerned about the complexity of the Group structure
and the inherent structural subordination risk for bondholders at the
holding company level.
Although Vedanta held consolidated cash and equivalents of some USD7.2
billion on its balance sheet as of March 31, 2010, Moody's
understood that this was primarily held in order to pre-fund its
substantial capital expenditure initiatives as well as modest purchases
such as the zinc assets recently acquired from Anglo American plc for
USD1.4 billion. Vedanta will therefore fund this investment
largely with debt. Sesa Goa will take a 20% holding in Cairn
India (worth some USD3.0 billion), funded largely by its
Moody's review will address 1) Vedanta's final funding strategy
for the acquisition and consequent impact on its financial leverage and
debt coverage metrics, and 2) the execution risk related to the
announced projects, the timing and availability of oil revenues,
and the suitability of the company's altered financial profile for
future oil and gas investment.
The review will also take into account Vedanta's expansive growth strategy
and the impact of any potentially reduced funding availability to the
existing arms of the business, as well as other strategic initiatives
that could emerge over the medium term.
The transaction requires approvals from the shareholders of all parties
concerned in addition to customary approvals from government and financial
bodies in India. It will also require that a number of other conditions
related to Cairn India's operations be met.
Moody's last press release with regard to Vedanta was published on May
11, 2010, when Moody's stated that Vedanta's acquisition
of the zinc-producing assets from Anglo American plc for USD 1,338
million had no immediate impact on Vedanta's ratings or outlook.
The principal methodology used in rating Vedanta is "Rating Methodology:
Global Mining Industry," published in May 2009, and available
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
Headquartered in London, UK, Vedanta Resources plc is a metals
and mining company focusing on integrated zinc, aluminum,
copper, iron ore mining and commercial power generation.
Its operations are predominantly located in India. It is listed
on the London Stock Exchange and is 59.67% owned by Volcan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's Investors Service Singapore Pte. Ltd.
Moody's places Vedanta Resources' ratings on review for possible downgrade
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