Vedanta Shares Plummet to 52-Week Low After Moody’s Downgrade

Vedanta Shares Hit a Low After Moody’s Downgrade

Vedanta shares witnessed a sharp decline of over 6%, reaching a new 52-week low of Rs 210. This slump occurred following a downgrade by Moody’s of the corporate family rating for Vedanta Resources, the London-based promoter group, and a major commodities player.

Vedanta Resources

Moody’s Investors Services lowered the rating of Vedanta Resources from Caa1 to Caa2 while maintaining a negative outlook. This decision was influenced by increased concerns regarding the company’s forthcoming debt repayments. Moody’s has also cautioned that further downgrades could be on the horizon if the company does not progress in securing funding arrangements.

The downgrade also affected the rating of senior unsecured bonds and bonds issued by Vedanta Resources Finance II Plc, a wholly-owned subsidiary. Moody’s lowered the rating from Caa2 to Caa3.

Elevated Risk of Debt Restructuring

The primary reason for the downgrade is the elevated risk of debt restructuring in the coming months. Vedanta Resources faces substantial debt maturities, including $1 billion bonds maturing in both January 2024 and August 2024. Moody’s analyst Kaustubh Chaubal emphasized the lack of meaningful progress in refinancing these upcoming debt obligations.

Weak Liquidity and Financing Challenges

Moody’s pointed out that Vedanta Resources’ credit quality is constrained by weak liquidity due to extensive refinancing needs and high-interest expenses. The tightening financing conditions in global capital markets further exacerbate the company’s challenges. Additionally, Vedanta has limited opportunities to raise financing, as its entire shareholding in Vedanta and Hindustan Zinc is already pledged.

Shares of #Vedanta fell by nearly 3 per cent after Taiwan's #Foxconn withdrew from a USD 19.5 billion semiconductor joint venture with mining baron Anil Agarwal's firm.https://t.co/O0anrVCzTi

— The Telegraph (@ttindia) July 11, 2023

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Moody’s attributed Vedanta Resources’ Caa category CFR (Corporate Family Rating) to its unsustainable capital structure, aggressive risk appetite, and weak financial management. The company’s ability to generate cash flows will be hindered by the softening commodity price environment.

Bond Restructuring Challenges

Vedanta Resources’ plans for restructuring its bonds have encountered resistance from investors. Discussions with bondholders regarding changes to repayment timelines and other terms have faced difficulties.

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In summary, Vedanta’s shares plunged to a 52-week low after Moody’s downgraded Vedanta Resources. Thus, it cites concerns about upcoming debt repayments and the company’s financial challenges. The downgrade reflects the risk of debt restructuring in the near future. Vedanta Resources will need to address these issues to regain investor confidence.