The rating action also considers the impact of the company's governance practices on its credit profile, which Moody's regards as credit negative
Rating agency Moody's has downgraded the corporate family rating (CFR) of Vedanta Resources
Limited (VRL) from “B1” to “B2” due to its persistently weak liquidity and high refinancing needs.
Moody's has revised the ratings on the VRL’s senior unsecured bonds from “B3” to “Caa1”. All ratings remain under review for further downgrade.
The downgrade primarily reflects holding company VRL's persistently weak liquidity and high refinancing needs amid growing signs of an aggressive risk appetite. This has implications for the company's financial strategy and risk management, said Kaustubh Chaubal, Vice President and Senior Credit Officer, Moody’s.
The rating action also considers the impact of the company's governance practices on its credit profile, which Moody's regards as credit negative.
Holding company VRL's liquidity has been severely challenged with $2.8 billion of its debt maturing from January 2021 through June 2022. This includes inter-company debt maturities of $507 million and a $325 million debt maturity at VRL's sole shareholder Volcan Investments, which Moody's expects to be serviced out of VRL group cash flows.
Further weakening the holding company's liquidity is an estimated $470 million of annual interest expense.
VRL's funding access had been underpinned by continued support from Indian and multinational banks not only at the operating entities, but also at various holding companies, Chaubal said.
However, VRL had to repay its $425 million debt maturity from one of its relationship banks, as opposed to rolling it over or refinancing it with other long-term debt, a sign of reduced bank support.
On November 20, VRL announced it had appointed a top-15 accountancy firm, MHA Maclntyre Hudson as its
statutory auditors for the fiscal year ending March 2021 following Ernst & Young's – the company's former statutory auditors -- decision not to be reappointed as auditors.
Ernst & Young were statutory auditors of VRL for the fiscal years 2017 through 2020 and had issued a qualified audit report for fiscal 2020.