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Vedanta’s Credit Rating Upgraded to AA Amid Successful Capital Raising

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Synopsis:

Vedanta’s credit rating upgraded to AA after raising $1 billion through QIP and $400 million from Hindustan Zinc shares. The company aims to reduce debt, lower interest costs, and improve financial flexibility, with a projected leverage ratio drop by FY2025.

In a significant boost to Vedanta Limited’s financial standing, credit rating agency ICRA upgraded the company’s long-term credit rating to AA from AA-. This positive shift follows the Mumbai-based mining and resource conglomerate’s successful capital-raising efforts, which involved generating $1 billion through a qualified institutional placement (QIP) and an additional $400 million through the sale of shares in Hindustan Zinc Limited.

These capital inflows are strategically earmarked for reducing Vedanta’s overall debt burden, with a specific focus on lowering interest costs. The move forms part of Vedanta's broader deleveraging strategy aimed at improving the company’s financial flexibility and overall creditworthiness.

Lowering debt and interest costs

Vedanta’s deleveraging efforts have been well-received by the market, as the company plans to use the newly raised capital to refinance a significant portion of its outstanding bonds. This move is projected to reduce the company's consolidated interest costs substantially, contributing to improved financial stability.

According to ICRA’s report, Vedanta’s leverage ratio is expected to fall to 2.3-2.5 times in FY2025 and FY2026, down from 3.6 times in FY2024. Additionally, Vedanta's interest coverage ratio, which measures its ability to cover interest payments, is projected to increase to 3.5-4.0 times, signalling stronger financial health.

Strong Q1 performance and ongoing risks

The rating agency also highlighted Vedanta’s robust performance in the first quarter of FY2025, with significant growth in operating profit. This growth reinforces the company’s ability to service its debt and strengthen its balance sheet.

However, ICRA pointed to certain risks that could impact Vedanta’s future outlook, including the potential for fluctuations in commodity prices, ongoing regulatory changes, and recent tax rulings by the Supreme Court of India.

Vedanta’s demerger process closely monitored

Another critical factor is Vedanta’s ongoing demerger process, which involves separating its business units into distinct entities. The demerger, expected to be completed by December 2024, will be closely monitored by investors and analysts alike, as it could further influence the company’s financial and operational structure.

With the credit rating upgrade and successful capital raising, Vedanta is poised to strengthen its financial position. However, careful management of risks related to market conditions and regulatory changes will be key to sustaining this momentum.

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Updated - 12 December 2024
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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