Yields On Vedanta Resources Bonds Surge After Moody’s Downgrade
The dollar-denominated bonds of Vedanta Resources are trading at yields between 19-35% as prices have fallen.
Debt securities of Vedanta Resources have taken a beating after the group’s credit rating was downgraded by Moody’s Investor Services last week. A sell-off across the high-yield debt markets due to the rapid global spread of coronavirus has added to the weakness across dollar-denominated bonds of the diversified metals and mining group.
Data from Bloomberg shows that dollar-denominated bonds of Vedanta Resources are trading at yields between 19 percent and 35 percent as prices have fallen. Bond yields and prices move inversely.
For instance, the 8.25 percent bonds due in 2021 have seen yields surge to nearly 35 percent. Securities due in 2023 are trading at yields of close to 24 percent, while those due in 2026 are trading closer to 19 percent.
On March 3, Moody’s Investors Service downgraded Vedanta Resources’ corporate family rating to B1 from Ba3. The rating agency also downgraded the company’s senior unsecured bonds to B3 from B2.
It cited a sustained deterioration in company’s credit profile and the expectation that its credit metrics will remain weak for some time. “In particular, Moody’s expects that over the next 12 months, Vedanta's credit metrics will breach Moody's downgrade triggers for it’s previous Ba3 rating of debt/EBITDA leverage above 4.0, EBIT/interest below 2.5x, and cash flow from operations less dividends/adjusted debt below 15 percent,” Moody’s said.
Moody’s points out that the low and volatile commodity price environment will mean that Vedanta’s earnings will unlikely improve significantly. Consequently, the company’s financial profile will take longer than anticipated to strengthen.Moody’s Investors Service
Moody’s added that its rating action reflects a revised view on the treatment of a loan raised in 2018 by Vedanta’s sole shareholder, Volcan Investments, for Vedanta’s privatisation.
Moody’s now expects that Vedanta will need to pay an additional dividend towards meeting Volcan’s upcoming debt maturity, the rating agency said. “While we note that the additional dividend will be adjusted towards reducing dividend payments in the next fiscal year, it blurs the separation between the two companies.”
To be sure, the global credit environment has also turned volatile and lower rated bonds have seen a jump in yields across the board. Borrowing costs in Asia’s dollar bond market surged, as did the price of insuring such debt against default, Bloomberg reported on Thursday.