Moody's upgrades Vedanta's senior unsecured notes; outlook 'stable'

Moody's Investors Service has said it has upgraded Vedanta's senior unsecured notes to 'B3' from 'Caa1'.

It has affirmed holding company Vedanta Resources Ltd's (VRL) B2 corporate family rating, Moody's Investors Service has said in a statement.

Moody's has also changed the outlook on all ratings to 'stable' from 'negative'.

"Moody's has upgraded to 'B3' from 'Caa1', its rating on the senior unsecured notes issued by VRL and those issued by VRL's wholly-owned subsidiary, Vedanta Resources Finance II Plc and guaranteed by VRL," Moody's Vice-President and Senior Credit Officer Kaustubh Chaubal said.

He added that the affirmation of the corporate family rating (CFR) and the change in outlook to 'stable' reflect VRL's improving financial metrics because of firm commodity prices and its cost-competitive operations.

"These factors and the company's progress in simplifying its complex organisation structure will reduce cash leakage and help to sustainably lower leverage," Chaubal said.

The 'stable' rating outlook reflects Moody's view that VRL's operating and financial metrics will continue to improve under the rating agency's base case commodity price sensitivities.

The upgrade of the senior unsecured notes rating reflects the narrowing of the difference between VRL's CFR and its senior unsecured notes' rating to one notch from two notches previously.

"We consider that subordination risk has reduced for the holdco creditors at VRL.

"This is due to further simplification of VRL's organisation structure with a higher shareholding in key operating subsidiary Vedanta Ltd (VDL), greater credit diversification through an improving business mix across commodities, and a steady reduction in the company's priority claims ratio," Chaubal, who is also Moody's lead analyst for VRL, said.

The latest rating actions also follow improved liquidity and refinancing risks at holdco VRL following its recent fundraising through term loans from relationship banks, alleviating some of Moody's previous concerns around bank support for the holdco.

These credit positive developments have implications for the company's financial strategy and risk management, a key component in Moody's governance risk assessment framework.

In Moody's rating scale, obligations rated 'B' are considered speculative and are subject to high credit risk, whereas those rated 'Caa' are judged to be of poor standing and are subject to very high credit risk.

Moody's appends numerical modifiers 1, 2 and 3 to its generic rating classifications. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.