Billionaire Anil Agarwal's Vedanta Resources Ltd has debt servicing obligations of about USD 3 billion, including interest, in the current fiscal, S&P Global Ratings said on Monday, estimating that the natural resources company will likely have enough liquidity until December 2023.
In a statement, S&P said Vedanta is close to securing about USD 1 billion of funding at one of its operating companies.
"The India-based natural resource company has debt servicing obligations of about USD 3 billion, including interest and inter company loans," it said. "It will have at least another USD 1 billion obligations that require funding until March 2024."
Vedanta Resources is the parent company of Mumbai-listed Vedanta Ltd that declared a fifth interim dividend for 2022-23 fiscal last month.
"The rating on Vedanta Resources reflects our expectation that it will secure additional funds to support liquidity beyond December 2023," S&P said. "The company is discussing with banks and investors on multiple funding options for at least another USD 2 billion."
Successful closure of some of these discussions will facilitate the payment of its USD 1 billion bond due January 2024.
"Failure to demonstrate a credible refinancing plan at least six months before the bond maturity could lead to downside rating pressure," it said, adding it did not believe that Vedanta Resources will not undertake any transaction that would be regarded as distressed.
Vedanta Resources' funding initiatives are also supported by its capacity to borrow at its subsidiary, Twin Star Holdings Ltd. The latter directly owns a 46 per cent stake in the operating company, Vedanta Ltd.
"Vedanta Resources has been more successful in the past in raising debt at the Twin Star level, given the structural seniority of Twin Star debt to Vedanta Resources debt.
"We estimate Twin Star has the capacity to raise about USD 500 million under its debt covenants," the rating agency said.
Vedanta Resources' USD 1 billion bond maturing in January is also part of the debt at Twin Star. Its USD 400 million bank loan maturing during the year are also part of the debt at intermediate holding companies, Twin Star, and Vedanta Netherlands Investments B.V.
"While the recent fund-raising is credit-positive, Vedanta Resources will become more dependent on external funding. This is due to declining cash at the company's operating subsidiaries, which has historically been a source of credit strength," it said.
S&P estimated that Vedanta Ltd had consolidated cash of about USD 2.5 billion as of March 31, 2023, down from about USD 4 billion as of March 31, 2022.
The company will use USD 930 million of this to pay dividends in April.
However, external funding risk has increased due to challenging market conditions.
"Although Vedanta Resources has a track record of raising funds in stressed market conditions and is willing to raise expensive debt to refinance, constant refinancing risk continues to hold back the company's credit profile," S&P said.
"Vedanta Resources Ltd. will likely have enough liquidity until December 2023," it added.