S&P Global Ratings on Thursday downgraded Vedanta Resources’ (VRL) long-term issue ratings of bonds to ‘CC’ from ‘CCC’ on a potential transaction involving extension of maturities of three dollar denominated bonds of $3.2 billion. The ‘CC’ ratings indicate a ‘highly vulnerable’ status.The ratings of the bonds — due on January 2024, August 2024, and March 2025 — remain on credit watch with negative implications, where they were first placed on September 29, 2023, S&P said in a statement.The credit watch status reflects the likelihood that S&P would downgrade VRL to ‘SD’ (selective default) if the company completes the transaction. Further, it could also lower the ratings on the company’s three bonds to ‘D’.
“We view VRL’s proposed liability management exercise involving three of its US dollar-denominated bonds totalling $3.2 billion as a distressed transaction under our criteria. We do not consider the new terms of the proposed transaction as constituting adequate compensation to offset the lengthened maturities and new terms that are different from the original promise,” it added.
As part of the exercise, VRL would address three bond maturities using a mix of cash and new bonds. Accordingly, it will exchange about half of the January 2024 bond with new bonds maturing in January 2027, and most of the August 2024 and March 2025 bonds with new amortising bonds maturing in December 2028.The completion of a liability management exercise initiated by VRL to extend the maturities of the bonds will constitute a distressed exchange, it said.
“If the company does not proceed with the transaction, we see rising risks of a conventional payment default. This is given $1 billion in bonds due on January 21, 2024, and limited progress on alternate repayment plans,” it added.
The likelihood of a conventional default in the absence of the transaction is “high”, S&P, said adding, this was because of the company’s large upcoming debt maturities and weakened access to both internal cash flow and external financing. VRL has about $4.5 billion in debt maturities through March 2025.S&P also revised the credit watch implications on the ‘CCC’ issue rating on VRL’s bond due in April 2026, which is not part of the proposed transaction, to ‘developing’ from ‘negative’. This reflects the likelihood that the rating on this bond could move in either direction, depending on the outcome of the transaction on the other bonds.