Vedanta, Hind Zinc shares in news as Moody's downgrades VRL rating on debt restructuring risks

Shares of Vedanta Ltd and Hindustan Zinc Ltd will be in focus on Wednesday morning, as credit rating agency Moody's cut its rating on Vedanta Resources’ (VRL) senior unsecured bonds, citing elevated risk of debt restructuring over the next few months. Moody's said the London-based Vedanta Resources did not make any meaningful progress on refinancing its upcoming debt maturities, in particular the $1 billion bonds maturing each in January 2024 and August 2024.

The corporate family rating (CFR) of Vedanta Resources has been cut to Caa3 from Caa2. Besides, Moody's has downgraded its rating on the senior unsecured bonds issued by VRL and its subsidiary Vedanta Resources Finance (guaranteed by VRL) to Caa3 from Caa2. It also kept its outlook negative.

Anil Agarwal's Vedanta Resources is the promoter entity of India-listed Vedanta. Vedanta owned 64.92 per cent stake in Hindustan Zinc. Shares of Vedanta have fallen 29 per cent year-to-date while those of Hindustan Zinc declined 4 per cent. This is against a 6.32 per cent rise in the BSE Metal index during the same period.

Moody's said Vedanta Resources' credit quality is constrained by its weak liquidity because of interest expense and large refinancing needs, thanks to tightening financing conditions in global capital markets. It noted that the holdco company sold a 4.3 per cent stake in India-listed Vedanta for around $500 million to stave off some of the pressure. It said since its entire shareholding in Vedanta and that Vedanta's entire 64.9 per cent shareholding in Hindustan Zinc, which holds around two-thirds of the group's consolidated cash, have already been pledged, Vedanta Resources has limited financial flexibility to raise financing.

Moody's said a softening commodity price environment would somewhat strain the ability of Vedanta Resources operating subsidiaries to generate cash flow. "More importantly, the potential for contagion risk from the holdco's debt woes may also impair the operating subsidiaries' ability to raise funds to distribute dividends," it said.

Moody's said Vedanta Resources' consolidated debt/Ebitda leverage stood at 3.7 times as of March 2023. This was substantially strong for its Caa category CFR.

Still, Moody's said, the company continues to face challenges in refinancing its debt, a reflection of reduced appetite from the lending community, and a key credit concern.

"VRL's Caa category CFR reflects the company's unsustainable capital structure, aggressive risk appetite and weak financial management," it said.

Also read: Last day to subscribe to JSW Infrastructure IPO, PM Modi to launch projects worth Rs 5,200 crore in Top News on Sept 27: Share markets outlook, IRCTC’s offers on flight tickets, World Tourism Day