Vedanta Resources bond buybacks ‘opportunistic’, Moody’s says

Vedanta Resources announcement of the initiation of partial buybacks of its convertible bond maturing July 2016 and senior unsecured bond maturing June 2016 do not represent distressed exchanges, according to Moody's.

In a note to clients on Tuesday, the ratings agency said its conclusion is based on the consideration that the bonds are currently trading at close to par value and investors are not expected to incur any economic loss if they participate in these buybacks.

More significantly, Moody's does not assess the buybacks as instances of default avoidance.

On 31 March, Vedanta announced that it had begun the buyback of up to $148.6m of its outstanding $743m 6.75% bonds due in June 2016, currently trading at 98.75 cents; and up to $200m of the outstanding $582m convertible bonds due July 2016, trading at 99.75 cents.

Vedanta will finance the buybacks from cash on its balance sheet and part repayment of an intercompany loan by one of its subsidiaries. Moody's specifies two conditions for a buyback to qualify as a distressed exchange: (1) the buyback has the effect of allowing the issuer to avoid default; and (2) as a result of the buyback, creditors incur economic losses relative to the par value of the bond.

“At the same time, in this instance, the cumulative economic loss to Vedanta's investors remains extremely low, and therefore we treat the proposed buybacks as opportunistic,” Moody’s concluded.

At the close of trading in London, Vedanta Resources shares were down 9.80p or 2.87% at 331.20p.