Fitch Assigns First-Ever 'B-' Rating To Vedanta With Positive Outlook

Fitch Ratings published Vedanta Resources Ltd. 'B-' rating for long-term foreign-currency issuer default rating, with a positive outlook. The brokerage also published senior unsecured rating of 'B-' and a recovery rating of 'RR4' for the company's proposed $1.2 billion senior unsecured notes to be issued by subsidiary Vedanta Resources Finance II Plc and guaranteed by Vedanta Resources.

Fitch had withdrawn its ratings for Vedanta in 2014 as the company stopped participating in the ratings process.

The positive outlook means Fitch sees potential for VRL to improve its financial situation in the future. It is driven by successful issuance of $1.2 billion since September 2024 and plans to raise an additional $1.2 billion for refinancing, reflecting enhanced financial flexibility, Fitch said.

The Positive Outlook is also supported by VRL's efforts to improve its financial structure, with external holdco debt dropping by approximately $4 billion since financial year 2022.

The refinancing actions demonstrate improved financial discipline, although the outlook will remain positive only if VRL is able to execute its planned debt refinancing successfully. Failure to do so could lead to a revision of the outlook to stable, reflecting greater financial access and discipline risks, the Fitch report stated.

The 'B-' rating from Fitch indicates that VRL faces significant challenges in meeting its financial obligations, particularly with its high debt load and the refinancing risks associated with $2.3 billion in debt and substantial interest-servicing needs until March 2027.

Despite these risks, VRL's financial position has improved, with a notable reduction in debt and better access to capital markets. The company’s ability to refinance its upcoming debt maturities, supported by income from brand fees and dividends from subsidiaries, is critical to managing its financial obligations.

However, concerns remain about VRL’s liquidity, its high interest burden, and its governance structure, which has been criticised for a lack of adequate checks and balances, given the dominance of the founding family on its board.

This restructuring has allowed for longer debt maturity terms and reduced interest costs, which strengthens its overall financial profile. However, VRL continues to face refinancing risks, particularly with the complex structure of its operations and debt guarantees at intermediate subsidiaries. The company's exposure to cyclical commodity markets, including zinc, aluminium, and oil, further complicates its credit standing, as price volatility can have a significant impact on its profitability.