Vedanta Resources Faces Credit Downgrade Amid Concerns Over Bond Extensions

Vedanta Resources has been downgraded to ‘CC’ by S&P Global Ratings due to concerns over potential bond extensions. The company initiated a liability management exercise to extend the maturities of three U.S. dollar-denominated bonds totaling US$3.2 billion. If the exercise is completed, it would be considered a distressed exchange. Failure to proceed raises the risk of a conventional payment default, particularly on a US$1 billion bond due on Jan. 21, 2024.

S&P lowered the long-term issuer credit rating on Vedanta Resources and the issue ratings on the affected bonds from ‘CCC’ to ‘CC.’ The ratings are on CreditWatch with negative implications. The proposed transaction involves exchanging bonds with a mix of cash and new bonds, but S&P views the terms as inadequate compensation for the extended maturities and different terms. The company faces challenges in accessing internal cash flow and external financing.

The proposed liability management exercise includes a private credit facility with priority access to brand fee payments and asset sale proceeds. S&P highlights concerns about the adequacy of compensation and the prioritization of the private credit facility over other creditors. Despite enhancements, including guarantees and access to brand fees, S&P considers them insufficient to offset the risks.

CreditWatch status indicates the likelihood of a downgrade to ‘SD’ (selective default) if the transaction is completed. Ratings may be initially raised to the ‘CCC’ category post-transaction, contingent on clarity about repayment plans for about US$1 billion of debt due in fiscal 2025. If the exercise fails, focus shifts to the risk of non-payment on the Jan. 21, 2024, bond. The April 2026 bond is on CreditWatch with developing implications, dependent on the outcome of the transaction on other bonds.

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