S&P Upgrades Vedanta Resources On Improving Capital Structure, Liquidity

S&P Global Ratings raised its long-term issuer credit rating on Vedanta Resources Ltd. as well as the issue ratings on its senior unsecured bonds to B- from CCC+ on the company’s improving capital structure and liquidity.

The resources conglomerate has sufficient internal resources to meet $1.4 billion of debt maturities until December 2025 following recent funds raised and improved dividend capacity at its subsidiaries, S&P said in a statement.

The rating agency noted that Vedanta Resources raised about $500 million by selling a 2.6% stake in its subsidiary Vedanta Ltd. at the end of June. This, together with potential dividends and brand fee from Vedanta Ltd., should help the company meet its obligations even in the absence of any external debt raising, it said.

S&P also said Vedanta Resources' access to liquidity through dividends has been boosted by the transfer of about $1.25 billion of general reserves to retained earnings at Hindustan Zinc Ltd., a 65% subsidiary of Vedanta Ltd.

Vedanta Ltd.'s stronger operating performance than previously expected is also contributing to a higher dividend paying ability, it added.

DEBT REDUCTION

The rating agency said debt reduction at Vedanta Resources is gradually making the company's capital structure more sustainable.

It expects debt at Vedanta Resources level to decline by another $1 billion to about $4.5 billion over the next 12 months, based on its estimates of potential dividends and brand fee from Vedanta Ltd.

“Accordingly, we estimate interest expenses at the Vedanta Resources level will drop to $550 million-$600 million by the end of fiscal 2025 (ending March 31, 2025),” S&P said.

S&P said routine dividends and brand fee of at least $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 added.

The rating agency, which has Stable outlook on Vedanta Resources, said the company is likely to proactively look to refinance $600 million bond due April 2026, which if not done by December 2025 could increase liquidity pressure.

“That is the key credit factor to watch now,” S&P noted.

The Stable outlook reflects S&P’s view that the company will proactively address the maturity of $1.2 billion of debt in April 2026, with clarity over these plans by early 2025, according to the statement.

“The outlook also reflects our favorable view of the company's underlying operations, which should support refinancing efforts,” it said.

(Send feedback to editor@cornerofficejournal.com)