Vedanta Resources PLC ratings affirmed at 'BB', with negative outlook

Standard & Poor's Ratings Services said today that it had affirmed its 'BB' long-term foreign currency corporate credit rating on India-based Vedanta Resources PLC. The outlook is negative.

At the same time, S&P affirmed the 'BB' issue ratings on the company's senior unsecured notes. We also affirmed the 'BB' ratings on the senior unsecured notes issued by Vedanta's wholly owned subsidiaries and guaranteed by the company.

The rating on Vedanta reflects the ratings agency's view that the company's financial risk profile is "aggressive" and its business risk profile is "fair", as defined in its criteria.

S&P said in a statement, "Vedanta's financial strategy, which we view as aggressive, places much of its debt, but none of its cash, at the holding company. Operational risks in Vedanta's metals and mining businesses in India are growing, in our opinion. The company has limited backward integration in aluminum, power, and copper. Vedanta is also exposed to the volatility in commodity prices."

The company's strong market position in zinc and low cost of production in oil and gas partly offset the above weaknesses. In addition, Vedanta's cash flow coverage metrics are supportive of a higher financial risk profile when viewed on a consolidated basis.

"We expect that the acquisition of Cairn India Ltd. will increase Vedanta's consolidated profitability and improve its cash flows," said Standard & Poor's credit analyst Vishal Kulkarni. "Nevertheless, the weaker-than-expected performance of Vedanta's other businesses is likely to somewhat offset the benefits from the Cairn acquisition. We partly attribute the weaker performance to increased country risk in India."