Global rating agency Standard and Poor's (S&P), on Tuesday, said Vedanta Resources Ltd needs to be proactive about refinancing its $1 billion bond due in January 2024.
Refinancing risk remains the key driver for rating the Anil-Agarwal-led company. This was against the backdrop of its subsidiaries' reduced balance sheet liquidity. The current rating on the entity is at the "B-/Stable" level.
Earlier in April this year, the rating agency had said that a credible refinancing plan at least six months before maturity would be important to maintain the current rating. This remains the case. As such, the end of July will be an important milestone for the rating, S&P said in a statement.
The company's planned semiconductor business does not increase immediate liquidity pressure. There is no immediate sizable funding commitment for the semiconductor project, pending government approval for it.
On July 10, 2023, Taiwanese major Foxconn walked out of its joint venture with Vedanta group almost a year after signing a pact to set up a Rs 1.54-trillion facility in Gujarat.
At the current rating level, the impact of the new growth plans on liquidity rather than on leverage will be the key credit consideration. "We expect the company will prioritize its cash flow for repaying debt over growth plans at the current time", S&P added.
The covenants at Vedanta Resources and Vedanta Ltd (Vedanta Resources' 68 per cent owned India-based subsidiary) could restrict the amount of additional debt Vedanta Ltd. can incur for the project.
On July 8, 2023, Vedanta Ltd. said it would acquire Vedanta Foxconn Semiconductors Ltd (VFS). Vedanta Ltd. will now have an approximately 60 per cent indirect stake in the semiconductor business that will be carried out through VFS.
Previously, Vedanta Ltd. Had said the business would be undertaken in a group entity separate from itself and Vedanta Resources. This structure would have reduced the implementation and funding risk of the new business on Vedanta Resources, the rating agency added.