CRISIL upgrades Vedanta’s long-term debt, loan ratings from ‘AA-‘ to ‘AA’

CRISIL Ratings raised the rating of Vedanta Ltd’s bank facilities and long-term debt instruments from “AA-” to “AA” due to stronger than expected operating profitability, driven by high commodity prices in the fiscal year 22. The upgrade also takes into account volume growth across all businesses and continued profitability, particularly in the aluminum business.

The short-term rating of bank facilities and commercial paper has been reaffirmed at ‘CRISIL A1+’.

While commodity prices are expected to moderate in FY23, relative to current spot levels, prices are expected to remain healthy. Thus, Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) is expected to be higher than expected at over Rs 44,000 crore in FY22. It was around Rs 27,500 crore in FY21.

The company’s EBITDA is expected to exceed Rs 40,000 crore in FY23 and would contribute to improved free cash flow and return on capital employed in the medium term. In addition, management should use accrued liabilities to reduce funded debt outstanding and improve resilience to a decline in commodity prices.

CRISL said the strong improvement in operating expenses and the expected reduction in outstanding consolidated gross and net debt should help net debt decline to 2.2-2.3 times as of March 31, 2022, and stay below 2.5 times thereafter. Net leverage was 3.1x as of March 31, 2021.

The company’s promoters sought to improve the corporate structure by increasing their stake in Vedanta Ltd. Between December 2020 and December 2021, they increased their stake in Vedanta to 69.7% from 50.1%, via additional debt of nearly $2.4 billion. . While this reduced the payment of dividends to minority shareholders and improved overall financial flexibility, it also increased consolidated debt.

Vedanta’s improved profitability in fiscal 2022 could help reduce Vedanta Resources Ltd’s debt from December 2021 levels, and thereby support consolidated deleveraging, he added.

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John A. Bogar