Moody’s Investors Service has affirmed Vedanta Resources Plc’s corporate family rating at Ba1 and its senior unsecured rating at Ba3.
The outlook for both ratings remains negative. Vedanta’s rating reflects its earnings generation underpinned by its acquisition of Cairn India in December 2011, but its operating cash flow is restrained by softer commodity prices in the current year. While capital investment can be deferred to compensate for weaker cash flow, the purchase of the Government’s stake in Hindustan Zinc at some stage and the Group’s refinancing requirements over the next nine months, leave undue pressure on its liquidity and rating. However, Vedanta still showed $484 million of free cash flow post-expansionary capex in H1 FY13. “Vedanta’s EBITDA for the financial year ended March 2013 will include a full 12 months of Cairn India instead of the less than four months of contribution made in FY12. However, given the output challenges in the iron ore business and only modest output ramp-ups elsewhere, EBITDA in H2 FY13 is not expected to advance on that achieved in H1 FY13,” said Alan Greene, VP-Senior Credit Officer, Moody’s. “The bedrock of the business is clearly Vedanta’s 58.5 per cent stake in Cairn India, and following its recent restructuring, it is now able to convert its cash flow into dividends,” said Greene.