Vedanta's proposed government stake purchase to reduce refinancing risks: Fitch
29 Mar 2012
Vedanta Resources Plc's proposed $3.4-billion purchase of the government of India shares in Hindustan Zinc Ltd (HZL, 29.5 per cent) and Bharat Aluminium Company Ltd (Balco, 49 per cent) could reduce refinancing risks.
Fitch notes that additional funding for the GoI stake acquisition will increase consolidated net financial leverage but expects it to remain within the negative rating guideline of 2.75x, thus limiting any impact on Vedanta's long-term foreign currency issuer default rating (LTFC IDR) of 'BB+'.
The stake purchase will consolidate the holding structure and enhance Vedanta's liquidity, in particular, by enabling full access to HZL's large cash balance (around $3 billion at end-December 2011) and free cash flows (FY11: USD619m).
Through its 58.2 per cent holding in Sterlite Industries, Vedanta currently has a 64.9-per cent stake in HZL and 51 per cent stake in Balco.
This, together with Vedanta's previously announced proposed reorganisation, in turn could reduce structural subordination of its senior unsecured bonds and potentially benefit the 'BB' rating of the bonds.
Vedanta's senior unsecured bonds are currently rated a notch lower than the issuer's LTFC IDR due to structural subordination arising from its separation from operational cash flows, fragmented shareholding and high debt to be serviced at Vedanta.