Standard & Poor's Ratings Services has affirmed its 'BB' long-term foreign currency corporate credit rating on Vedanta Resources Plc. This implied a negative outlook, S&P said in a note.
“The negative outlook on Vedanta reflects sizable and recurrent refinancing requirements at the holding company as well as its subsidiaries over the next two three years,” said S&P's analyst Vishal Kulkarni.
“It also takes into consideration the company's lack of track record of declaring dividends of the magnitude that it has projected over the next 12 months. The negative outlook further echoes our view that the ban on iron ore mining (in Goa) could extend beyond the next three months.” “We also affirmed the 'BB' ratings on the senior unsecured notes issued by Vedanta's wholly owned subsidiaries and guaranteed by the company,” the global rating agency said.
Vedanta is listed in London, but most of its assets are in India except one in Africa and another in Australia. S&P also affirmed the 'BB' issue rating on the company's senior unsecured notes.
The rating on Vedanta reflects the company's exposure to commodities, which are now in a downswing, as also the country and operating risks in India.
Constraints include iron ore mining restrictions, time-consuming approval processes, and changes in taxes and royalties. These weaknesses are, however, tempered by Vedanta's subsidiary Cairn India, and the group’s advantageous cost position, particularly in zinc and oil.
“We believe Cairn will continue to provide about a third of Vedanta's consolidated EBITDA in fiscals 2013 and 2014 (ending March)”, it added.
Debt maturity of Vedanta and its subsidiaries is at about $3 billion over the next two years. “This will test Vedanta's current ability to access the capital markets. The company's refinancing plans include using cash from its subsidiaries to partially repay debt,” the agency observed.
The pending reorganisation of its Indian subsidiaries is designed to reduce and debt servicing of Vedanta. The reorganisation, however, will keep the consolidated debt unchanged.