Ratings agency Fitch has assigned Vedanta Aluminium (VAL) a low default risk rating with a stable outlook on the back of the firm’s strong linkages with parent company Vedanta Resources Plc.
“Fitch Ratings has assigned India’s Vedanta Aluminium Ltd (VAL) a national long-term rating of ‘A-(ind)’ the outlook is stable,” it said in a statement.
An ‘A’ national rating denotes expectations of low default risk relative to other issuers or obligations in the same country.
“The ratings benefit from VAL’s strong linkages with its parent, Vedanta Resources Plc (VRPLC), driven by the key role VAL is expected to play in the parent’s global aluminium strategy,” Fitch said.
It added that the linkage is also reflected by guarantees furnished by VRPLC and another subsidiary - Sterlite Industries India Ltd - toward over 90 per cent of VAL’s total external debt.
“VAL has also received unsecured loans from Sterlite and other group companies,” Fitch said.
It, however, said that the ratings are constrained by the non—availability of captive bauxite mines for VAL, which results in higher operating costs and low profitability.
The rating was constrained by a decline in VAL’s EBITDA margin to 14.4 per cent in 2010—11 from 24.1 per cent in the previous fiscal.
“The company has consolidated most of its debt with an extended repayment schedule and this may have a positive impact on VAL’s liquidity, which is driven by its strong refinancing ability with the support of its sponsors,” Fitch said.