Vedanta Resources’ liquidity buffer will be depleted by March 2021 amid its failed delisting: Moody’s

Mumbai: Amid Vedanta’s failed delisting, rating agency Moody’s has said that it expects the holding company Vedanta Resources’ liquidity buffer to be depleted by the end of March 2021.

“VRL’s failed bid is a credit negative. The takeover would have significantly improved the holding company VRL's cash flow and liquidity,” the report by Moody’s investor service said.

The company can service its debt with the dividends from Vedanta Ltd or through management fees from its various operating subsidiaries. In addition to this VRL will also receive $0.9 billion from its step-down foreign subsidiary Cairn India Holdings Limited (CIHL), of which a part was already upstreamed in H1, the report said, adding that it expects the cash sources to be insufficient to cover cash needs after Q3 of FY21.

As of March 2020, around $7.5 billion (50%) of the group's total consolidated reported debt would come due through March 2022, including $2.5 billion at VRL and $425 million at VRL's sole shareholder Volcan Investments.

“Without operations of its own, VRL’s need to refinance debt maturities at a time of tight capital market liquidity puts undue pressure on key subsidiaries to upstream cash,” the report said.

As per Moody's VRL has remained weakly capitalized with thin equity and Volcan has not infused any fresh equity into VRL since its 2003 initial public offering even during periods of acute stress at the holding company.

However, the report said that the consolidated credit metrics which includes Vedanta Ltd and Hindustan Zinc, remain far stronger than the economic reality. However, VRL’s earnings available for debt servicing are restricted to the extent the operating subsidiaries distribute their surpluses in the form of dividends, the report said.

Vedanta Ltd on Saturday announced an interim dividend of Rs 9.50 per equity share, which amounts to a total sum of Rs 3,500 crore, and Hindustan Zinc declared an interim dividend of Rs 21.3 per share, and the record date for paying the same falls on October 28th.

As per Moody’s report, support from banks has been forthcoming in the past with various Indian and multinational banks lending on an unsecured basis to VRL. The entire $1.2 billion debt maturities at the holding company VRL in fiscal 2021 are bank loans and around 60% of the $1.7 billion debt maturities in fiscal 2022 are bank loans.

“Holdco VRL's ability to refinance these debt maturities by securing long-term financing and continued access to relationship banks will be critical to retain its current ratings, and key considerations during our ratings review process,” the report said.

Moody's had placed Vedanta Resources Limited's B1 corporate family rating (CFR) under review for downgrade, on 20th of October.

On 10^th of October, VRL announced its voluntary delisting offer to acquire the balance shareholding in VDL and then delist it from the stock exchange. Consequently the company failed at the reverse book building stage. The total number of shares tendered by Vedanta’s public shareholders fell 7% short of the minimum 90% for successful delisting.