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Rating Action:

Moody's places Vedanta Resources' ratings under review for downgrade

20 Oct 2020

Singapore, October 20, 2020 -- Moody's Investors Service has today placed Vedanta Resources Limited's B1 corporate family rating (CFR) under review for downgrade. Concurrently, Moody's has placed under review for downgrade the B3 ratings on the senior unsecured bonds issued by Vedanta and those issued by its wholly-owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by Vedanta, affecting USD4.2 billion in outstanding debt.

The ratings outlook was changed to ratings under review from negative.

RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

"The review follows an increase in refinancing risk and significant funding needs at the holding company level, following Vedanta Resources' failure to acquire the balance shareholding in key subsidiary Vedanta Limited that would have improved access to group cash," says Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer.

On 10 October, the company announced that its voluntary delisting offer -- to acquire the balance shareholding in key subsidiary Vedanta Limited and then delisting it from the stock exchange -- had failed at the reverse book building stage. The total number of shares tendered by Vedanta Limited's public shareholders fell 7% short of the mandatory minimum 90% for successful delisting.

Moody's had viewed the proposed delisting as a credit positive and a step forward in simplifying the group's complex shareholding structure, that would have allowed for better access to consolidated cash while avoiding leakage during dividend distributions. With the failed delisting, the holding company's liquidity risk has increased with around USD2.9 billion in debt maturities between April 2020 and March 2022 (including a USD120 million revolving credit facility repayable in February 2021 and USD425 million - the remainder of Volcan's debt to privatize Vedanta Resources) and annual interest payments of USD470 million each year.

Moody's expects the holding company to arrange part of the required funds from intercompany loans from foreign subsidiaries, dividends from operating subsidiaries and continued refinancing. However, falling bond prices and widening yields on the company's USD bonds cast downside risks to the holding company's ability to refinance in a timely manner. More importantly, in order to maintain its current ratings, Vedanta would need to secure long-term refinancing and demonstrate its continued access to financing from relationship banks, especially at the holding company.

Moody's review will focus on the holding company's ability to refinance its upcoming debt maturities in the fiscal year ending March (fiscal 2021) and fiscal 2022. Moody's expects to conclude the review within 90 days.

In the first half of the fiscal 2020, Vedanta Limited raised around USD1.3 billion in new debt facilities by pledging its 14.82% shareholding in cash-rich and profitable 64.9% owned subsidiary Hindustan Zinc Limited (HZL). Moody's assesses the share pledge, the holding company's persistently weak liquidity and refinancing needs as indicators of an aggressive risk appetite with implications for the company's financial strategy and risk management, a component of our governance risk assessment framework. Today's rating action considers the impact of Vedanta's governance practices on its credit profile.

The principal methodology used in these ratings was Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Vedanta Resources Limited, headquartered in London, is a diversified resources company with interests mainly in India. Its main operations are held by Vedanta Ltd, a 50.1%-owned subsidiary. Through Vedanta Resources' various operating subsidiaries, the group produces oil and gas, zinc, lead, silver, aluminum, iron ore and power.

Delisted from the London Stock Exchange in October 2018, Vedanta Resources is now wholly owned by Volcan Investments Ltd. Founder chairman of Vedanta Resources, Anil Agarwal, and his family, are the key shareholders of Volcan.

For the 12 months to 31 March 2020, Vedanta Resources generated revenues of USD11.8 billion and adjusted EBITDA of USD3.4 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kaustubh Chaubal
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
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Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
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JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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