Standard & Poor places Vedanta on CreditWatch

Standard & Poor's Ratings Services today placed its 'BB' rating on London-based Vedanta Resources PLC (Vedanta) on CreditWatch with negative implications. At the same time, the 'BB' rating on Vedanta's senior unsecured debt has been placed on CreditWatch with negative implications.

The CreditWatch listing reflects our view that Vedanta's sizeable capital expenditure programme and appetite for debt-funded acquisitions in a severe industry downturn increases its risk. Despite some project deferrals and 20 per cent reduction in major expansion project costs, Vedanta's capital expenditure pipeline remains sizeable at more than $7.6 billion, which will place demand on its funding and liquidity during the current period of uncertain internal cash flow generation.

"Although Vedanta is taking decisive actions to address the industry downturn, including steps to reduce operating costs at all businesses, especially in aluminum and copper through full integration, we expect weak industry conditions to prevail," said Standard & Poor's credit analyst Anita Yadav. "That could make it difficult for the company to maintain the business and financial risk metrics appropriate for the current rating."

The increases in debt at Vedanta, or debt guaranteed by it, despite some of the nonrecourse project finance debt arranged by its subsidiaries Vedanta Aluminium Ltd and Sterlite Energy Ltd, heighten the risk in Vedanta's holding company and operating company structure, Ms Yadav said.

The CreditWatch takes into consideration the recent acquisition of the mining assets of the V S Dempo & Co for a total of $368 million by Vedanta's subsidiary Sesa Goa and Vedanta's proposed issuance of $1.25 billion convertible bond issue.

Vedanta is also considering the acquisition of Asarco through its group company Sterlite Technologies. (See: Sterlite ups bid for Asarco by $170 million)

"In resolving the CreditWatch listing, we will meet with Vedanta's management and evaluate its future strategies relating to financial policy, growth aspirations and asset investment/divestment. We will also review the sustainability of improvements in operating margins as Vedanta undertakes major production cost-cutting programs," Ms Yadav added.