More Cash To Parent Volcan Will Weaken Vedanta Resources’ Credit Profile, Says Moody’s
If Vedanta takes over Volcan’s $900-million loan repayment responsibility, its liquidity conditions would weaken, says Moody’s.
Moody’s Investor Service cautioned that Vedanta Resources Ltd.’s willingness to deploy more funds at its parent Volcan Investments Ltd. would weaken its credit profile and put pressure on its rating.
If Vedanta takes over Volcan’s $900-million loan repayment responsibility, its liquidity conditions would weaken, the rating agency said in a statement. The debt is payable over next three years.
In December, Vedanta’s subsidiary Cairn India invested $561 million in a structured product of Volcan, a holding company controlled by billionaire Anil Agarwal. Moody’s said that is a clear indication of Vedanta's willingness to support Volcan’s interests.
Any willingness to deploy funds by March 2020 to make up for the cash-flow shortfall at Volcan would add pressure on its Ba3 (negative) rating, according to Moody’s. Ba3 rating refers to speculative grade with significant risk.
In February, the credit rating agency had changed its outlook to negative following the $561-million investment by Cairn India.
Moody’s pointed to Vedanta Resources’ high-yield lite covenant package for its outstanding $4.2-billion bonds to highlight the cash leakage risk. Lite covenant package is a type of financing with fewer restrictions on the borrower and, in this particular case, does not restrict similar related-party investments in the future.
The headroom under Vedanta Resources’ covenant reflect its capacity for further related-party investments, if required by Volcan, it said.
Shares of Vedanta Ltd., a subsidiary of Vedanta Resources, were trading 2.74 percent higher at 1:55 p.m. compared with a 0.18 percent rise in the Nifty 50 Index.