Vedanta Shares Have Fallen Almost 30% This Year—This Downgrade Makes Things Worse

Mining and metals firm Vedanta saw its shares drop on Thursday after a ratings agency downgraded its long-term debt.

What Happened: India Ratings and Research downgraded the firm’s long-term issuer rating from “IND AA” to “IND AA-“. The reason behind this rating cut is the Anil Agarwal-owned company’s growing liquidity concerns and a decrease in its financial flexibility, all stemming from delays in refinancing.

The downgrade reflects Vedanta’s increased liquidity risk and constrained financial flexibility, mainly because of delays in securing refinancing for substantial bond maturities in January 2024 and throughout the fiscal year 2024. These delays pose potential threats to the company’s liquidity and financial adaptability in the short term, as per India Ratings analysts.

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Why It Matters: This rating drop is attributed to Vedanta’s lower-than-expected cash accruals, partly due to shifts in the commodity cycle and higher borrowing costs for recent bond issuances. These factors may also impact Vedanta’s ability to support Vedanta Resources, according to India Ratings analysts.

CRISIL Ratings recently placed Vedanta Limited’s long-term bank facilities and debt instruments under “rating watch with negative implications”. Moody’s Investors Service also downgraded Vedanta Resources’ corporate family rating (CFR) from Caa1 to Caa2 due to increased risks of debt restructuring in the coming months. This dual downgrade maintains a negative outlook for Vedanta’s parent company, according to the global ratings agency.

These developments follow Vedanta’s initial move toward a proposed demerger, incorporating its base metal subsidiary Vedanta Base Metals. As a result of the demerger, India Ratings has also placed the company’s ratings on “rating watch with negative implications”. Vedanta plans to reorganize into six standalone listed entities over the next year and a half.

Price Action: Vedanta’s share price was down 0.35% at ₹226.85 in morning trade on Thursday. Its shares have lost more than 28% so far this year.

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