S&P downgrades Vedanta Resources to 'CC' on potential bond extensions

Standard and Poor’s (S&P) Global Ratings has downgraded Vedanta Resources Ltd’s long-term issuer rating and bonds from "CCC" to "CC" on a potential transaction involving extension of the maturities of three dollar denominated bonds amounting yo $3.2 billion. "CC" ndicates highly vulnerable status.

"We view Vedanta Resources' proposed liability management exercise involving three of its US dollar-denominated bonds totalling $3.2 billion as a distressed transaction under our criteria," S&P said in a statement.

The company's bonds are due in January 2024, August 2024, and March 2025. As part of the exercise, the company intends to address the three bond maturities using a mix of cash and new bonds. Accordingly, it will exchange about half of the January 2024 bonds with new bonds maturing in January 2027, and most of the August 2024 and March 2025 bonds with new amortizing bonds maturing in December 2028.

The ratings remain on CreditWatch with negative implications, where they were first placed on September 29, 2023. The CreditWatch status reflects the likelihood that S&P would downgrade Vedanta Resources to 'SD' (selective default) if the company completes the transaction. "We could also lower the ratings on the company's three bonds to 'D' in that event," the rating agency said.

The likelihood of a conventional default in the absence of the transaction is high. This is because of the company's large upcoming debt maturities and weakened access to both internal cash flow and external financing. The company has about $4.5 billion in debt maturities through March 2025, it added.

S&P said it does not consider the new terms of the proposed transaction as constituting adequate compensation to offset the lengthened maturities and new terms that are different from the original promise.