Moody's downgrades Vedanta Resources' corporate family rating to Caa2

Moody's Investors Service said it has downgraded the corporate family rating for Anil Agarwal-promoted Vedanta Resources Limited (VRL) in the absence of any meaningful progress on refinancing its upcoming debt maturities.

The rating service downgraded the rating to Caa2 from the earlier Caa1. According to Moody's rating scale, Caa indicates obligations that are judged to be speculative of poor standing and are subject to very high credit risk, with the modifier 1 indicating the higher end and 3 indicating the lower end of the rating category.

Moody's has also downgraded to Caa3 from Caa2 its rating on the senior unsecured bonds issued by VRL and those issued by VRL's wholly-owned subsidiary, Vedanta Resources Finance II Plc, and guaranteed by VRL. At the same time, Moody's has maintained the negative outlooks.

The rating agency said the downgrade reflects the elevated risk of debt restructuring over the next few months because VRL has not made any meaningful progress on refinancing its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024.

Moody's further noted that given VRL's entire shareholding in Vedanta Ltd (VDL) and that VDL's entire 64.9 per cent shareholding in Hindustan Zinc Limited (HZL), which holds around two-thirds of the group's consolidated cash, have already been pledged, this implies VRL has limited financial flexibility to raise financing.

Further, Moody's also sees the potential for contagion risk from the holdco's debt woes, which may also impair the operating subsidiaries' ability to raise funds to distribute dividends.