Standard & Poor's Ratings Services said today that it had placed its 'BB' foreign currency long-term corporate credit rating on Vedanta Resources PLC on CreditWatch with negative implications.
Vishal Kulkarni Credit analyst at Standard and Poor’s says that "We placed the ratings on CreditWatch because Vedanta's refinancing of its large upcoming debt maturities is delayed. We understand that the company has tied up the majority of the funds for its US$809 million debt maturing April 29 and is tying up the rest. Vedanta is in the process of securing funding for US$1,350 million debt due June 6, 2013."
The rating agency observes that that even if the company can refinance its April and June 2013 maturities they believe that Vedanta's ability to tie-up sizable funding to refinance its maturities will continue to be tested in the next 18 months even though they expect the company to eventually garner funding for the debt maturities
The ratings for the company can further get lowered in the unlikely event that Vedanta does not tie up all the funding for its April 2013 maturities by April 12, 2013; it fails to finalize funding for its June 2013 maturity at least one month before the maturity date; or we assess Vedanta's refinancing framework and financial management strategy as not being conducive to lengthen the maturities, diversify funding sources, strengthen liquidity at the holding company, and improve access to cash at the subsidiaries.
The company though had cash of US$7.2 billion on a consolidated level as of Sept. 30, 2012 is expected to find it difficult to access cash as cash flow from ongoing operations of its subsidiaries in India remain difficult. This is because of sizable cash leakages in the form of dividends to minority shareholders and taxes provide disincentives to Indian companies to declare dividends to the holding company.
Vedanta had acquired India-based oil company Cairn India Ltd in December 2011, and since then the dividends received by the parent company form only a small part of its large debt servicing needs. The holding company does not maintain any credit lines and therefore needs to rely on external sources of funding for refinancing.
However the Ratings for the company could get upgraded if Vedanta adopts strategy to refinance debt and improve liquidity at the holding company; the company maintains its "fair" business risk profile; and its operating performance is in line with our expectation.