“We believe the likelihood has increased that Vedanta Resources will undertake a liability management exercise that we could consider distressed under our criteria,” S&P Global said in its release.
On Tuesday, Moody’s downgraded the corporate family rating (CFR) of Vedanta Resources to Caa2, citing elevated risk to debt restructuring over the next few months because the company has not made any meaningful progress on refinancing its upcoming debt maturities.
The proximity of Vedanta Resources’ large bond maturity in January 2024 has increased the likelihood of the company undertaking a liability management exercise, S&P Global said.
The parent of Vedanta has initiated talks with bondholders to help address the company’s bond maturities of about $3 billion, including $1 billion in January 2024.
Further, Vedanta Resources faces constraints on alternate sources of funding, which adds to the downside risks.
In the absence of an immediate liability management exercise, S&P believes the company will be able to meet the $1 billion payment due in January. Vedanta Resources has partly addressed the maturity of the bond through sale of about 4% stake in subsidiary Vedanta Ltd in August.
Finding alternate options to meet the bond obligations could hinge upon events such as the transfer of general reserves to retained earnings at subsidiary Hindustan Zinc , or further asset sales, according to the global rating agency.
Given the large maturities following the January bond maturity, liability management could be a preferred option, rather than paying down the January bond.
As the terms of the liability management proposal has not yet been finalized, S&P Global is unable to determine the degree of distress the exercise could cause. It has, therefore, placed the company’s rating under ‘creditWatch’ with negative implications.
“The CreditWatch placement reflects the likelihood of further rating downside over the next three months, especially if we considered the liability management exercise to be distressed,” S&P Global said.
In its efforts to deleverage the balance sheet while unlocking value for stakeholders, Vedanta on Friday announced restructuring of its businesses with five new listed entities.
The 5 new entities will be Vedanta Aluminium, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Oil & Gas, and Vedanta Base Metals, and the company expects to complete the restructuring exercise in FY25.
Reports had said Vedanta was considering restructuring of business, and this saw shares close nearly 7% higher in trade on Friday at Rs 222.55 on the National Stock Exchange. The company announced the news after markets closed.