Moody's downgrades rating on senior unsecured bonds issued by Vedanta Resources

Ratings agency Moody's Investors Service on Tuesday downgraded its rating on the senior unsecured bonds issued by Resources to Ca from Caa3. The credit rating agency also downgraded the Corporate Family Rating (CFR) of Vedanta Resources to Caa3 from Caa2. “We view the debt restructuring as default avoidance and assess that the creditors have incurred an economic loss with respect to the original promise.

We consider the transaction to be a distressed exchange under our criteria, which underpins our downgrade of VRL's ratings," Moody's Senior Vice President Kaustubh Chaubal said. Vedanta's ratings reflect its unsustainable capital structure characterised by high financial leverage at the holding company and its perennially weak liquidity amid a period of continued large negative free cash flow, Moody's said.

“Proforma the debt restructuring, holdco VRL's near term liquidity will improve only slightly and its refinancing wall will start building up as it approaches its next bond maturity in April 2026," Chaubal said. Furthermore, a springing covenant requiring holdco VRL to refinance its April 2026 bond maturity by December 2025, failing which all amended bonds will mature in April 2026, will keep refinancing risk elevated and the likelihood of further distressed exchanges high, he added.

The ratings agency believes the company will still face material liquidity issues during the next 24 months and that its default risk remains high. Vedanta Resources, the UK headquartered parent company of Vedanta group, last week received bondholders' approval to restructure four series of bonds.

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