Vedanta Resources downgraded to 'CCC' with creditwatch negative as bond maturity nears

While Vedanta Resources is actively working to avert a payment default, the proximity of the bond maturity has increased the likelihood of the company pursuing a liability management exercise, the rating agency said.

The firm has already initiated talks with bondholders to address this financial challenge. However, S&P Global Ratings highlights that such a liability management transaction could be viewed as distressed, emphasizing the risks posed by Vedanta Resources' limited alternative funding sources.

Although Vedanta Resources has partially mitigated the bond maturity issue through a 4 percent stake sale in subsidiary Vedanta Ltd in August, there remains an unfunded gap of approximately $600 million.

Closing this funding gap may necessitate actions such as transferring general reserves to retained earnings at subsidiary Hindustan Zinc Ltd or further asset sales, S&P Global Ratings said.

Furthermore, the company faces additional large bond maturities following the January 2024 deadline, making liability management a potentially preferable option compared to immediate payment.

The ultimate rating outcome will depend on the nature and terms of the liability management proposal, with S&P Global Ratings indicating that adequate offsetting compensation would be required for the exercise not to be classified as distressed, it said.

The CreditWatch Negative status underscores the heightened likelihood of Vedanta Resources embarking on a potentially distressed liability management transaction, given its substantial upcoming debt maturities.

In the event that such a transaction is deemed distressed, the rating would be lowered to 'SD' upon completion and subsequently adjusted to reflect the company's altered capital structure and liquidity, the agency added.

Shares of Vedanta Ltd ended at Rs 222.50, up by Rs 14.25, or 6.84 percent on the BSE.