Vedanta Resources hit by Moody's downgrade

In a market alert issued on Friday, the ratings agency said Vedanta Resources’ corporate family rating (CFR) had been downgraded to Ba2 from Ba1. Concurrently, the company's senior unsecured ratings were downgraded to B1 from Ba3, with a negative outlook on all ratings.

Kaustubh Chaubal, senior analyst at Moody’s, said: “The downgrade of Vedanta's ratings primarily reflects our view that the company's operating performance will remain weak against the backdrop of persistently weak commodity prices."

Vedanta Resources reported consolidated revenue of $5.7bn and consolidated EBITDA of $1.3bn, down 12% and 39% respectively from a year ago, in its half year filing for the current fiscal year.

Reviewing the financials, Moody’s only saw “a low probability” of an immediate upside for the company. “Despite production ramp-ups and cost savings, we do not expect EBITDA to return to earlier levels of $4.5bn and above, even in the full year of 2017, given the current weak commodity price environment,” Chaubal added further.

Additionally, the agency said it could downgrade FTSE 250 company’ ratings further should “weak commodity prices persist, such that consolidated EBITDA for the current fiscal year drops below $2.8 bn - $3.1 bn, despite Vedanta's efforts in ramping up shipments”.

However, the outlook could return to stable if commodity prices recover or, on the back of its cost rationalisation initiatives, the company "restores its previous superior level of profitability."

Headquartered in London, Vedanta Resources is a diversified resources company which produces oil, zinc, lead, silver, aluminium, iron ore and power, with interests mainly in India.