Vedanta's long-term rating gets downgraded by Crisil

20 Nov 2023 , 02:02 PM

Vedanta’s stock stayed in the spotlight today following Crisil’s downgrade of the metal and mining company’s long-term bank facilities and debt instruments due to growing concerns about the firm’s financial flexibility. The Anil Agarwal-led company had already seen a decline in liquidity since the previous fiscal year. 

The grade also took into account the parent company Vedanta Resources Limited’s (VRL) upcoming debt refinancing risk and the company’s recent decision to demerge its operations into distinct listed standalone entities. The challenging task of refinancing $1 billion notes maturing in January 2024, $0.95 billion in August 2024, and $1.2 billion in March 2025 awaits VRL, a company listed on the London Stock Exchange (LSE).

Vedanta shares opened flat on the BSE at Rs 239.25 this morning and traded in a narrow range to touch Rs 241.30 at the high and Rs 238.40 at the low, respectively. On January 20, 2023, the stock reached its 52-week high of Rs 340.75, and on September 28, 2023, it reached its 52-week low of Rs 207.85. The mining heavyweight has dropped almost 22% over the past year, and it has dropped nearly 24% throughout the course of 2023. The counter recovered more than 8% in a month after losing more than 16% in the previous six months.

Crisil Ratings revised its rating watch to ‘Rating Watch with Developing Implications’ from ‘Rating Watch with Negative Implications,’ and reduced its rating on Vedanta’s long-term bank facilities and debt instruments to ‘CRISIL AA-‘ from ‘CRISIL AA’. Regarding the company’s short-term bank facilities debt instruments, the agency has reiterated its ‘CRISIL A1+’ rating and put it on ‘Rating Watch with Developing Implications.’

Vedanta’s consolidated financial leverage (ratio of net debt to EBITDA) for the current fiscal year is more likely to continue above the rating thresholds of 2.7 times, which is reflected in the reduction of the company’s rating. This is because the company expects to miss its earlier estimated fiscal year deadlines for successfully completing its plans to deleverage the balance sheet through the inorganic route of asset monetisation, according to a report.

The report goes on to say that the delay in refinancing the parent firm VRL’s forthcoming debt maturities beyond the anticipated deadlines of October 2023 is also a result of the rating downgrading. Vedanta, which has already experienced a decline in liquidity since the previous fiscal year, finds itself with less financial flexibility as a result of VRL’s refinancing delay.

The Vedanta board approved the division of the company into six independently traded companies in September. Vedanta will be divided into Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, and Vedanta Ltd. in accordance with the proposed demerger. Each of these companies will be listed separately on local stock exchanges. The proposed demerger is a straightforward vertical split, whereby the shareholders will obtain one share of Vedanta Ltd. for every one of the five recently listed firms.

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