Vedanta Resources Pushes For Investment Grade As Debt Falls To Decade Low

Vedanta Resources Ltd (VRL) aims for an investment-grade credit rating by FY27, targeting $3 billion debt through deleveraging, refinancing, and its Indian subsidiary's demerger

Vedanta Resources aims for an investment-grade credit rating by FY27, reducing debt to $3B

Source : Vedanta

London-based Vedanta Resources Ltd (VRL) is targeting an investment grade credit rating on the back of its sustained deleveraging, the proposed demerger at its Indian subsidiary, Vedanta Ltd, and its robust growth, operational efficiencies and strong financial performance.

VRL is committed to reducing its total debt from the current USD 5 billion to USD 3 billion by FY27 while strengthening its critical minerals, transition metals, energy and technology portfolio.

A person aware of the matter said that VRL, at a recently held investor conferences in Hong Kong and Singapore, shared that the company is looking for an immediate credit rating upgrade to BB levels by proactively refinancing and prepaying its high-interest cost USD 550 million private credit facility due in August 2026.

In the medium term, the company plans to achieve an investment grade rating on the back of its improved debt profile, financial and operational performance.

Vedanta highlighted its robust earnings, healthy free cash flows, ongoing growth projects, strengthened balance sheet, and future deleveraging plans to the investors, the source said.

An investment-grade credit rating signifies a company's strong capacity to meet its financial obligations and is considered a safe investment for institutional investors. It also allows a company to borrow money at lower interest rates, attracting a broader range of investors and gaining easier access to global debt markets.

At present, VRL has a credit rating of B+ by S&P, Fitch & Moody's, with S&P giving a 3-notch upgrade to the company in FY25.

The investment grade rating is linked to VRL's debt reduction target (to USD 3 billion) by FY27, so they are looking for an investment grade in about two years from now.

Sources indicate that VRL is currently working with banks to refinance and pre-pay a USD 550 million private credit facility that will expire in August 2026. It is likely to use a bank loan with single-digit interest rates to refinance the facility, with savings of 800-900 basis points, resulting in interest cost savings of USD 47 million, said the person quoted above.

The company expects to achieve an upgrade to BB levels right after the refinancing and will continue to work towards an Investment Grade credit rating of BBB-, in the medium term, which is considered the first rung of investment grade rated companies.

Vedanta Ltd (VEDL), through its Indian subsidiary, is in the final stages of its demerger process that will result in the creation of four new sector-focused, market-leading entities and will help unlock value for existing shareholders while offering investors an opportunity to invest in pure-play businesses.

The company expects the demerger to be completed by September 2025.

Over the past three years, the company has been on a path of sustained deleveraging and refinancing. Between March 2022 and March 2025, VRL reduced its net debt from USD 8.9 billion to USD 5 billion, the lowest in a decade.

Vedanta Group's net debt to EBITDA ratio has fallen from 3.3x in FY20 to 2x in FY25, and per VRL's subsidiary's earnings presentation, it is expected to fall further to 1x in the mid-term.

In FY25, VRL also refinanced its entire USD 3.1 billion bond portfolio, resulting in a significant reduction in average coupon rate by 250 bps while extending the maturity up to FY34. This will help in further improving the company's credit profile.

In its recent earnings call, VEDL's management opined that a normalised dividend of about 6 per cent yield might contribute USD 800 million receipt at VRL. Together with brand fees, dividend (paid by Vedanta Ltd. to VRL) and operating free cash flows, VRL's overall target of reaching USD 3 billion debt in two years remains intact.

In April, the subsidiary VEDL declared its FY25 results, achieving its highest ever annual revenue of USD 17.8 billion and the second highest annual EBIDTA of USD 5.1 billion, with its key businesses, Zinc India and Aluminium, in the top quartile and top decile of the global cost curve. 

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)