S&P upgrades Vedanta Resources rating on improving capital structure

S&P Global Ratings on Thursday said it has upgraded the rating of mining conglomerate Vedanta Resources Ltd to 'B' from 'CCC+' on improving capital structure and liquidity.

"We believe Vedanta Resources Ltd has sufficient internal resources to meet debt maturities until December 2025, following recent funds raised and improved dividend capacity at its subsidiaries," S&P said in a statement.

The company, which is the parent firm of Mumbai-listed Vedanta Ltd, has adequate internal funds to meet USD 1.4 billion of debt maturities due by the end of 2025.

S&P Ratings gave a stable outlook on Vedanta's rating.

"We raised our long-term issuer credit rating on Vedanta Resources as well as the issue ratings on its senior unsecured bonds to 'B-' from 'CCC+'," it said.

"The stable outlook reflects our view that the company will proactively address the maturity of USD 1.2 billion of debt in April 2026, with clarity over these plans by early 2025."

The company raised about USD 500 million by selling a 2.6 per cent stake in its subsidiary Vedanta Ltd at the end of June. This, together with potential dividends and brand fees from Vedanta Ltd, should help the company meet its obligations even in the absence of any external debt raising.

Vedanta Resources' access to liquidity through dividends has been boosted by the transfer of about USD 1.25 billion of general reserves to retained earnings at Hindustan Zinc Ltd, a 65 per cent subsidiary of Vedanta Ltd.

"Vedanta Ltd's stronger operating performance than we previously expected is also contributing to a higher dividend-paying ability," S&P said.

"We estimate debt at the Vedanta Resources level could decline by another USD 1 billion to about USD 4.5 billion over the next 12 months."

Routine dividends and brand fees of at least USD 1.1 billion per year over the next few years should adequately cover interest expenses and allow further deleveraging.

This should make Vedanta Resources' capital structure and debt servicing more sustainable, and could improve funding access over time, it said.

"Refinancing of USD 1.2 billion of debt due in April 2026 is the key factor from a credit perspective," the rating agency said, adding that this includes USD 600 million each from a private credit facility and a bond issue.

The refinancing of the April 2026 bond issue has to be done by December 2025.

"If that fails, the maturity of the company's January 2027 and December 2028 bonds, aggregating about USD 2.4 billion, would accelerate to April 20, 2026. This could precipitate a liquidity stress," it added.

S&P also revised upward its estimates of the company's earnings.

"We believe EBITDA for fiscals 2025 and 2026 will be in the range of USD 5.5 billion-USD 6.0 billion annually. The company's earnings are benefiting from favourable product prices and cost-reduction initiatives, particularly in the aluminium business.

"We expect zinc EBITDA to increase about 25 per cent and that for aluminium almost 50 per cent in fiscal 2025, more than offsetting our projected 40 per cent decline in oil earnings. The decline in the oil earnings is mainly because the company recorded USD 578 million in earnings in fiscal 2024 as a result of successful arbitration with the government on profit sharing under its license," S&P said.