Anglo American Zinc assets unlikely to impact Vedanta's Ratings: Fitch
18 May 2010
Mumbai: Fitch Ratings says today that Vedanta Resources Plc's (Vedanta, 'BBB-' / Negative), recently announced the acquisition of Anglo American Plc's zinc assets is unlikely to impact Vedanta's rating. Vedanta intends to make the acquisition through Hindustan Zinc Ltd (HZL), an entity controlled by Vedanta through its majority-held subsidiary, Sterlite Industries India Ltd.
Vedanta will pay $1,338 million out of HZL's existing cash balances which are in the region of $2.5 billion as at FYE10. As a result of the acquisition, Vedanta will control 100 per cent of the Skorpion mine in Namibia and the Lisheen mine in Ireland, and 74 per cent of Black Mountain Mining - including the Gamsberg project - in South Africa.
The transaction is subject to the receipt of various regulatory and board approvals from the relevant jurisdictions.
Fitch notes that although Vedanta's net debt levels will increase as a result of the acquisition, the asset to be acquired will be immediately EBITDA accretive, which is likely to moderate the impact on leverage.
For CY09, the acquired assets generated revenues of $670 million and EBITDA of $213 million on a production of 343kt of zinc and 55kt of lead. The assets have a relatively low reserve life and higher operating costs compared to HZL. Vedanta's management expects to create further value from the assets through new projects and resource exploration.
Vedanta's ratings continue to reflect the company's low net debt levels and substantial cash balances, as well as the growth in EBITDA from its highly profitable zinc and iron ore businesses following increased zinc prices and higher iron ore output respectively. For FY10, the company's revenues grew 21 per cent to around $7.9 billion, with EBITDA of around $2.3 billion.
Net debt levels remained low at around $0.9bn, including cash and equivalents of $7.2 billion. The Negative Outlook reflects the execution risk on account of large ongoing capex.