Vedanta shares in focus as CRISIL downgrades rating on bank loan facilities; here's what it says

Shares of Vedanta Ltd will be in focus on Monday morning after the ratings agency CRISIL downgraded its long-term rating on Rs 56,263.50-crore debt instruments and bank loan facilities of the Anil Agarwal-led company amid an "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." CRISIL's rating downgrade factored in a delay in refinancing the upcoming debt maturities of the parent company, Vedanta Resources (VRL), beyond the expected timelines of October 2023.

Net-net, the ratings agency factor in the expectation that Vedanta’s consolidated operating profitability for FY24 would be around earlier expectation of Rs 35,000 crore against Rs 35,250 crore in FY23. "This will be supported by continued benefit of reduced cost pressure and healthy operating rates across key business segments, along with recent gains from arbitration award in oil & gas business, despite commodity prices remaining modest and slower than expected progress on capex plans in aluminium business," it said.

Shares of Vedanta are up 7.43 per cent in the last one month but are still down 24 per cent year-to-date.

CRISIL said a successful completion of Vedanta's plans to deleverage its balance-sheet via asset monetisation was running behind the earlier expected timelines. The delay in refinancing at VRL reduces the financial flexibility for Vedanta, which had already witnessed a reduction in liquidity since last fiscal.

"The rating watch continues to factor in the impending debt refinancing risk at the VRL as well as the recent corporate announcement by Vedanta to demerge its businesses into separate listed standalone entities," CRISIL said.

CRISIL has revised its outlook to "Rating Watch with Developing Implications' from 'Rating Watch with negative implications earlier. The ratings agency expects the parent firm to be able to timely repay the bond maturing in January 2024. It took note of promoters’ commitment to avoid any delay in payment by Vedanta Resources, in addition to the group’s track record of refinancing.

"Further, the promoters have demonstrated their ability to raise funds through stake sale (4 per cent sold in Q2FY2024, VRL currently holds 63.7 per cent in Vedanta) and that along with refinancing and incremental dividend payouts should support the timely repayment of January 2024 bond maturity," CRISIL said.

It, however, noted that Vedanta Resources is in process of refinancing the bonds maturing in January 2024 ($1 billion), August 2024 ($0.95 billion) and March 2025 ($1.2 billion), which can potentially reduce the refinancing pressure on VRL, thereby reducing the need for significantly large annual dividend payouts by Vedanta over the medium term.

"CRISIL Ratings understands 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," the ratings agency said.

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