Crisil, India Ratings cut outlook on high-dividend payout

Following the fifth dividend announcement, domestic rating agencies Crisil and India Ratings downgraded the outlook for Vedanta to 'negative' from 'stable', citing increased cash outflow in the form of dividends towards large maturing debt obligations at its parent company, Vedanta Resources (VRL).

Crisil has revised its rating outlook on the non-convertible debentures (NCDs) and long-term bank facilities of Vedanta to ‘negative’ from ‘stable’, while reaffirmed the rating at ‘CRISIL AA’. The rating on the commercial paper and short-term bank facilities has been reaffirmed at ‘CRISIL A1+’. “The revision in outlook reflects possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to 1-year maturities for fiscals 2023 and 2024. This is due to increased cash outflow from Vedanta, in the form of dividends, towards large maturing debt obligations at its parent company viz. Vedanta Resources. This is owing to increased refinancing risk at VRL and moderating operating profitability (Ebitda) of Vedanta,” the agency said in a report.

VRL has annual debt maturities of around $3 billion each in fiscal year 2024 and 2025 with high near-term maturities of around $1.7 billion in the first quarter of fiscal 2024. As per the rating agency, including the recent dividend announced by Hindustan Zinc (HZL), the subsidiary of Vedanta, dividend payout by Vedanta for fiscal 2023 will be more than ₹40,000 crore (highest ever, including dividend payout by HZL to its minority shareholders). This is expected to result in a cash balance of less than ₹20,000 crore for March 2023 against more than ₹30,000 crore in March 2022.

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