S&P cuts outlook on Vedanta Resources on funding risks

BENGALURU (Reuters) – S&P Global Ratings on Thursday cut its outlook on Vedanta Resources, parent of Indian metals-to-oil conglomerate Vedanta Ltd, to “negative” from “stable,” citing increased funding risks.

The rating agency said the billionaire Anil Agarwal-owned company’s “weakened access” to cash flow from its operating units amid challenging external financing conditions raised its refinancing risk.

The negative outlook reflects the company’s tight liquidity due to large debt maturities until March 2025, S&P said, adding that it estimates the company’s funding gap to be $2 billion until August 2024.

Vedanta Resources can pay off about half of its $3 billion debt maturities and interest expenses of $650 million with the funds raised by selling part of its stake in 64%-owned Vedanta Ltd, along with dividends and brand fees, the rating agency said.

To meet the rest of the dues, the company may have to raise at least $600 million before its $1 billion bond matures in January and the rest before August 2024, it added.

S&P flagged the increased risk exposure, citing a “significantly” reduced dividend capacity of the Indian arm and the turbulence in capital markets. The rating agency, however, affirmed its “B-” rating on Vedanta Resources, anticipating it will raise more funds before 2023 end, citing the company’s “willingness to pay and a track record of fundraising even in adverse funding conditions.”

In February, Agarwal sought to trim down the resources major’s $7.7-billion debt by getting Hindustan Zinc, a unit of Vedanta Ltd, to buy some of the parent’s zinc assets in a $2.98 billion deal. But the Indian government, which owns a nearly 30% stake in Hindustan Zinc, opposed the acquisition, dealing a blow to Agarwal’s plans.

(Reporting by Hritam Mukherjee in Bengaluru; Editing by Janane Venkatraman and Dhanya Ann Thoppil)