Shares of Vedanta remained in focus today after Crisil downgraded the long-term bank facilities and debt instruments of the metal and mining company amid rising concerns about financial flexibility of the billionaire Anil Agarwal-led firm, which had already witnessed a reduction in liquidity since last fiscal. The rating also factored in the recent plan to demerge its businesses into separate listed standalone entities as well as the impending debt refinancing risk at the parent company, Vedanta Resources Limited (VRL). The London Stock Exchange (LSE)-listed VRL faces the daunting task of refinancing $1 billion bonds maturing in January 2024, followed by $0.95 billion in August 2024, and $1.2 billion in March 2025.

Early today, Vedanta shares opened flat at ₹239.25 on the BSE and moved in a narrow range to touch a high and low of ₹241.30 and ₹238.40, respectively. The stock touched its 52-week high of ₹340.75 on January 20, 2023, and 52-week low of ₹207.85 on September 28, 2023. In the last one year, the mining heavyweight has fallen nearly 22%, while it tumbled nearly 24% in the calendar year 2023. The counter has lost over 16% in six months, while it rebounded more than 8% in a month.

Crisil Ratings has downgraded its rating on the long-term bank facilities and debt instruments of Vedanta to ‘CRISIL AA-’ from ‘CRISIL AA’ and revised its rating watch to 'Rating Watch with Developing Implications' from 'Rating Watch with Negative Implications'. The agency has reaffirmed its ‘CRISIL A1+’ rating on the short-term bank facilities debt instruments of the company and placed it on 'Rating Watch with Developing Implications'.

“The rating downgrade reflects the increased likelihood of Vedanta’s consolidated financial leverage (ratio of net debt to EBITDA) for the current fiscal remaining higher than the rating thresholds of 2.7 times. This is because successful completion of the company’s plans to deleverage the balance-sheet through inorganic route of asset monetisation is expected to be behind the earlier expected timelines for the fiscal,” it says in a report.

The report further highlights that the rating downgrade also factors in the delay in refinancing the upcoming debt maturities of parent company VRL beyond the expected timelines of October 2023. The delay in refinancing at VRL reduces the financial flexibility for Vedanta, which had already witnessed a reduction in liquidity since last fiscal, it adds.

Last month, S&P Global Ratings and Moody's Investors Services downgraded Vedanta Resources' ratings. S&P Global downgraded VRL to "CCC" from "B-" on potential bond extensions and also placed it under ‘credit watch’. A CCC rating indicates higher vulnerability in meeting its financial commitments. While Moody's cut VRL’s corporate family rating (CFR) from ‘Caa1’ to ‘Caa2’, citing elevated risks of debt restructuring.

Crisil in its report says that the revision in watch from negative to developing implication considers that VRL would be able to timely repay the bond maturing in January 2024. The agency takes note of promoters’ commitment to avoid any delay in payment by VRL, along with the group's track record of refinancing. Further, the promoters have demonstrated their ability to raise funds through stake sale ( around 4% sold in Q2 FY24, VRL currently holds 63.7% in Vedanta) and that along with refinancing and incremental dividend payouts should support the timely repayment of January 2024 bond maturity.

“However, Crisil Ratings understands that the VRL is in process of refinancing the bonds maturing in January 2024 ($1 billion), August 2024 ($0.95 billion) and March 2025 ($1.2 billion). This can potentially reduce the refinancing pressure on VRL, thereby reducing the need for significantly large annual dividend payouts by Vedanta over the medium term,” the report notes.

The agency opines that VRL’s debt refinancing is expected to be completed during the current quarter of fiscal 2024 and the same will be a key monitorable and a rating sensitive factor. 

In September, the board of Vedanta gave a nod to split the business into six separately listed entities. As per the proposed demerger, Vedanta will be split into Vedanta Aluminum, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Ltd, which will be listed as separate entities on domestic bourses. The demerger is planned to be a simple vertical split, for every 1 share of Vedanta Ltd, the shareholders will additionally receive 1 share of each of the 5 newly listed companies.

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