S&P Upgrades Vedanta Resources On Improved Capital Structure And Liquidity
The company, which is the parent firm of Vedanta Ltd., has adequate internal funds to meet $1.4 billion of debt maturities due by the end of 2025.
S&P Global Ratings has upgraded the rating of mining conglomerate Vedanta Resources Ltd. to 'B' from 'CCC+' on improving capital structure and liquidity.
The ratings action came after S&P noted that Vedanta Resources possesses adequate internal resources to cover its debt maturities through December 2025, following recent funds raised and improved dividend capacity at its subsidiaries.
The company, which is the parent firm of Mumbai-listed Vedanta Ltd., has adequate internal funds to meet $1.4 billion of debt maturities due by the end of 2025.
S&P Ratings gave a stable outlook on Vedanta's rating.
The agency said it raised the long-term issuer credit rating on Vedanta Resources as well as the issue ratings on its senior unsecured bonds to 'B-' from 'CCC+'.
"The stable outlook reflects our view that the company will proactively address the maturity of $1.2 billion of debt in April 2026, with clarity over these plans by early 2025," it said.
The company raised about $500 million by selling a 2.6% stake in its subsidiary Vedanta, at the end of June. This, together with potential dividends and brand fees from Vedanta, should help the company meet its obligations even in the absence of any external debt raising.
Vedanta Resources' access to liquidity through dividend has been boosted by the transfer of about $1.25 billion of general reserves to retained earnings at Hindustan Zinc Ltd., a 65% subsidiary of Vedanta.
"Vedanta's stronger operating performance than we previously expected is also contributing to a higher dividend-paying ability," S&P said.
"We estimate debt at the Vedanta Resources level could decline by another $1 billion to about $4.5 billion over the next 12 months. Routine dividends and brand fees of at least $1.1 billion per year over the next few years should adequately cover interest expenses and allow further deleveraging. This should make Vedanta Resources' capital structure and debt servicing more sustainable, and could improve funding access over time," it said.
Refinancing of $1.2 billion of debt due in April 2026 is the key factor from a credit perspective, the rating agency said, adding that this includes $600 million each from a private credit facility and a bond issue. The refinancing of the April 2026 bond issue has to be done by December 2025.
"If that fails, the maturity of the company's January 2027 and December 2028 bonds, aggregating about $2.4 billion, would accelerate to April 20, 2026. This could precipitate a liquidity stress," it said.
S&P also revised upward its estimates of the company's earnings.
"We believe Ebitda for fiscals 2025 and 2026 will be in the range of $5.5 billion-$6.0 billion annually. The company's earnings are benefiting from favourable product prices and cost reduction initiatives, particularly in the aluminium business," it said.
"We expect zinc Ebitda to increase about 25% and that for aluminium almost 50% in fiscal 2025, more than offsetting our projected 40% decline in oil earnings. The decline in the oil earnings is mainly because the company recorded $578 million in earnings in fiscal 2024, as a result of successful arbitration with the government on profit sharing under its license," S&P said.
(With inputs from PTI)
