S&P Downgrades Vedanta Resources On Likely Bond Extensions

S&P Global Ratings downgraded Vedanta Resources Ltd.’s long-term issuer credit rating and the issue rating on the company's outstanding debt to CCC from B-.

The proximity of the UK-based natural resources conglomerate’s large bond maturity in January 2024 has increased the likelihood of the company undertaking a liability management exercise, S&P said in a statement.

Billionaire Anil Agarwal-led Vedanta Resources has initiated talks with bondholders to help address the company's bond maturities of about $3 billion, including $1 billion in January 2024, the rating agency said. The company remains committed to avoiding a payment default, it added.

“We could assess such a liability management transaction to be distressed,” S&P said.

The rating agency said Vedanta Resources' limited alternate sources of funding add to downside risks, even though payment of the January bond is highly likely. In the absence of an immediate liability management exercise, the company will be able to meet payment of the $1 billion bond in January 2024, it noted.

S&P said Vedanta Resources has partly addressed the maturity of the bond through the sale of about 4% stake in its Indian subsidiary Vedanta Ltd. in August.

However, the sources for the remaining funding gap, which is estimated to be about $600 million, are not yet in place, S&P said. Further funds to redeem the bond could depend on events such as the transfer of general reserves to retained earnings at subsidiary Hindustan Zinc Ltd., or further asset sales, it added.

Moreover, the presence of further large maturities following the January bond maturity could make liability management a preferred option, rather than paying down the January bond, the rating agency said.

S&P placed Vedanta Resources’ ratings on CreditWatch with negative implications.

“The CreditWatch placement reflects the likelihood of further rating downside over the next three months, especially if we considered the liability management exercise to be distressed,” it said.

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