Moody's lowers Vedanta's bond rating on Cairn buy

Our Bureau Mumbai | Updated on March 12, 2018 Published on January 13, 2012

Moody's has lowed Vedanta Resources Plc's bond rating to Ba3 from Ba2 while retaining the corporate family rating at Ba1 on the back of concern over high debt post-acquisition of controlling stake in Cairn India. The outlook on both ratings is maintained at negative.

While the acquisition of Cairn India should enhance the Group's EBITDA, Vedanta drew $2.78 billion from its pre-arranged acquisition facilities. Coupled with the issue of $1.65 billion of bonds in June 2011, the debt level is now in excess of $9 billion, said Moody's.

First announced in August 2010, Vedanta has successfully negotiated the course of approvals, objections and amended production contract arrangements and now holds 38.5 per cent of Cairn India directly, with a further 20 per cent held by Sesa Goa, Vedanta's 55.1 per cent-owned subsidiary.

The debt

While some of Vedanta's debt is backed by inter-company loans, the bulk of debt has been applied towards acquisitions. “Unless refinanced with more debt, acquisition debt servicing relies on equity returns.

“Sporadic efforts have been made to offset the lack of parent company profits and to move cash to the parent level but the ability to declare regular dividends from the operations, chiefly in India, and to upstream these via the intermediate holding companies, is not well established,” said Mr Alan Greene, Vice President (Senior Credit Officer), Moody's.

The impact of the depreciating rupee has been seen with earnings attributable to equity holders of Vedanta falling to $28 million in the six months to September 2011, largely as a result of net mark-to-market losses on financing arrangements at the Indian subsidiaries.

Sterlite Industries, a subsidiary of Vedanta Resources, is negotiating with the Government to buyback 49 per cent stake it holds in Balco at about Rs 1,500 crore. As of September, Sterlite had cash and cash equivalents of Rs 22,691 crore.

Sterlite took over Balco in 2001 for Rs 551 crore in the Government of India's divestment programme. Vedanta Resources also holds stake in Malco, Hindustan Zinc, Vedanta Aluminium and Sesa Goa.

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Published on January 13, 2012
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