Moody’s places Vedanta rating under review for downgrade

Moody’s Investors Service on Tuesday placed mining firm Vedanta Resources Ltd’s rating under review for downgrade, saying the firm remains vulnerable to falling oil and metal prices as well as shrinking demand following the outbreak of coronavirus. In a statement, Moody’s said it has changed the ratings outlook for Vedanta to ratings under review from stable.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.

“The combined credit effects of these developments are unprecedented. Exploration and production (E&P) and metals and mining are among the sectors most significantly affected by the shock given their sensitivity to consumer demand and sentiment,” it said. “More specifically, the weaknesses in Vedanta’s credit profile, including its exposure to various commodities, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions, and Vedanta remains vulnerable to the outbreak continuing to spread,” it added.

Moody’s said it regards the coronavirus outbreak as a social risk given the substantial implications for public health and safety. Today’s action reflects the impact on Vedanta of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered, it said.

“The review for downgrade reflects our expectation that low oil and base metal prices will significantly strain Vedanta’s financial metrics, at least through the fiscal year ending March 2021,” said Kaustubh Chaubal, Moody’s Vice President and Senior Credit Officer. “Moreover, the review highlights the heightened refinancing risk surrounding the holding company’s around USD 1.9 billion of debt securities, which will mature through September 2021,” he said.

Moody’s review for downgrade will focus on the outbreak’s impact on Vedanta’s operations in light of increasing restrictions on people’s movement and the potential for a shutdown of operations to ensure employee safety. It will also focus on the impact of the outbreak on oil and base metal prices and Vedanta’s asset base, cost structure, likely cash burn rate and liquidity, as well as management’s strategy for coping with prolonged, low and volatile commodity prices.

It will also look at the impact of potential countermeasures such as capex deferment and reduced dividends; and Vedanta’s resilience in various stress testing scenarios, including in particular its ability to refinance its USD 1.9 billion of debt securities via the capital markets and bank debt. “Moody’s could downgrade the ratings if Vedanta’s earnings and financial metrics are unlikely to recover to levels supportive of its present ratings and pre the current coronavirus outbreak,” the statement said.

Vedanta’s failure to complete the refinancing of its debt maturities at least 12 months ahead of scheduled maturities will also stress its ratings.

Vedanta Resources Ltd, headquartered in London, is a diversified resources company with interests mainly in India. Its main operations are held by Vedanta Ltd, a 50.1 per cent 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 September 30, 2019, Vedanta Resources generated revenues of USD 13.7 billion and adjusted EBITDA of USD 3.3 billion.