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    Moody's upgrades Vedanta Resources' corporate family rating

    Synopsis

    The upgrade of Vedanta's ratings reflects stabilising commodity prices.

    ET Bureau
    Kolkata: Moody's Investors Service has upgraded Vedanta Resources plc's (Vedanta) corporate family rating (CFR) to Ba3 from B1. It has also upgraded the company's senior unsecured bond rating to B2 from B3. The rating outlook is stable.

    "The upgrade of Vedanta's ratings reflects our view that the relatively benign operating environment and stabilizing commodity prices will aid in enhancing the company's EBITDA and cash flow generation," Kaustubh Chaubal, a Moody's senior analyst said. Improved sales volumes led by higher production levels, is expected to pave the way for earnings and cash flow expansion for Vedanta. However, annual capital expenditure aggregating $1.2-1.5 billion and dividend payments is likely to restrict cash flow generation, Moody’s said.

    The upgrade also reflects the significant progress that Vedanta has made in reducing absolute debt levels following the merger of its subsidiary Vedanta Ltd. with the group's oil and gas subsidiary Cairn India Ltd. (CIL), the ratings agency said. “The company has reduced about 17% of its gross debt," Chaubal, who is Moody's lead analyst on Vedanta, added. The agency also factored in Vedanta’s diversified business with presence in copper, zinc, aluminum, iron ore, oil and gas, and power businesses across multiple geographies in the upgrade.

    Vedanta's unsecured bond issuances in January and August this year -- each totaling $1 billion -- and a $840 million term loan for refinancing-- are proactive steps towards refinancing its debt maturities and lengthening the age profile of its debt, according to Moody’s. The agency said it expects the current operating environment and the company's track record in turning around its operations will assist Vedanta plc's ability to refinance the term debt -- largely owed to relationship banks -- aggregating $1.2 billion due over the next 16 months.

    While the ratings could experience positive momentum if commodity prices strengthen, Moody's said it does not anticipate downward rating pressure over the next 12-18 months, given the stable outlook. However, the ratings could come under negative pressure if commodity prices weaken and Vedanta's consolidated adjusted EBITDA is pressured, despite efforts to ramp up shipments and/or the company is unable to sustain and improve its cost reduction initiatives, such that profitability weakens, with its consolidated EBIT margin falling below 15% on a sustained basis.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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