Credit rating agency Standard & Poor's said on Thursday that it has placed its 'BB' foreign currency long-term corporate credit rating on Vedanta Resources Plc on CreditWatch with negative implications.
“We have placed our 'BB' rating on Vedanta's outstanding issuances on CreditWatch with negative implications,” S&P credit analyst Vishal Kulkarni said.
"We placed the ratings on CreditWatch because Vedanta's refinancing of its large upcoming debt maturities is delayed," Kulkarni said in a media note.
“We understand that the company has tied up majority of the funds for its $809-million debt maturing on April 29 and is tying up the rest. Vedanta is in the process of securing funding for $1,350-million debt due on June 6, 2013. We believe Vedanta's ability to tie-up sizeable funding to refinance its maturities will continue to be tested in the next 18 months, even if the company can refinance its April and June 2013 maturities,” the statement added.
Though S&P expected Vedanta to eventually garner funding for the debt maturities, it observed that the company's inability to plan and execute a strategy to diversify funding sources, lengthen maturities, and improve its "less than adequate" liquidity (as defined in S&P criteria) could pressurise the rating further.
The rating agency felt that Vedanta's access to cash (of $7.2 billion on a consolidated level as of September 30, 2012) and cash flow from ongoing operations of its subsidiaries in India could remain difficult.
“This is because sizeable cash leakages in the form of dividends to minority shareholders and taxes provide disincentives to Indian companies to declare dividends to the holding company. Since Vedanta acquired India-based oil company Cairn India Ltd in December 2011, dividends received by the parent company form only a small part of its large debt servicing needs. The holding company does not maintain any credit lines and therefore needs to rely on external sources of funding for refinancing,'' the agency added.
S&P said it would review Vedanta's status after it executed its plan to refinance debt maturities, due in April and June, and assess the company's financial management strategy.