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Moody’s upgrades Vedanta’s bond rating, outlook

Moody’s upgrades Vedanta’s bond rating, outlook

24 Aug 2021

Mumbai:Moody’s Investors Service has upgraded Resources’ senior unsecured notes to B3 rating from Caa1 and has changed its outlook to ‘stable’ from ‘negative’ on the back of improving operating and financial metrics and also on account of firm commodity prices.

“The company’s progress in simplifying its complex organisation structure will reduce cash leakage and help to sustainably lower leverage, such that its consolidated debt/Ebitda is less than 3.0x by March 2022,” said Kaustubh Chaubal, vice-president at Moody’s. The firm has also affirmed holding company Vedanta Resources’ B2 Corporate Family Rating (CFR).

The upgrade of the senior unsecured notes rating reflects the narrowing of the difference between the Vedanta Resources’ CFR and its senior unsecured notes rating to one notch from two notches earlier, Moody’s said in its report on Monday.

The stable outlook follows the improvement in liquidity and refinancing risks at Vedanta following its recent fundraising through term loans, improving Moody’s expectations for continued bank support at the holding company. However, liquidity is weak at the holding company level.

Moody’s expects Vedanta’s dividend income and management fee from key operating subsidiaries to be sufficient to meet its cash needs until the end of FY22. “A $1 billion maturity in July 2022 presents looming risks, although VRL could tap dividends from operating subsidiaries given their liquid investments,” the report noted.

Currently, commodity prices are around 5%-15% higher than Moody’s price sensitivities, illustrating a modest upside to the agency’s forecast of consolidated adjusted Ebitda of up to $6 billion for FY22. “These estimates should translate into leverage tracking comfortably below 3.0x by March 2022, progressively improving from the 4.4x registered at March 2021 and 5.2x at March 2020,” the report said.

“As such, Moody’s views Vedanta as poised for a significant strengthening in its credit metrics given the rating agency’s expectation that commodity prices are likely to stay at solid levels over the next 12 to 18 months.”