A fortnight after Standard & Poor’s revised its outlook on Vedanta Resources from ‘Negative’ to ‘Stable’ on expectations of a reversal in operating conditions in India, another rating agency Fitch on Friday took a contrary action as it downgraded Vedanta’s long term issuer default rating from BB+ to BB, keeping the outlook stable.
Interestingly, the rating agency subsequently withdrew its ratings on the company after Vedanta decided to not to participate in their rating process. “Vedanta has chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for Vedanta,” said Fitch in its statement.
The shares of Sesa Sterlite fell by 2.5 per cent on Friday even as the Sensex at BSE rose by 1.5 per cent to close at an all time high of 25,396.
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An email sent to Vedanta group spokesperson on Friday did not elicit any response.
While downgrading, Fitch pointed that Vedanta’s financial profile was weak in relation to the peers within the group that have been rated BB+. The company’s proportionate leverage stood high at 5.5x. “Vedanta’s consolidated net debt/EBITDA of 1.8x does not capture the leakages of cash to minority shareholders at its subsidiaries,” said the report.
It further said that Vedanta’s interest cover was weak at 0.72x as on March 2014. “The company meets its interest obligation from the inter-company advances repaid by its group companies. This is likely to continue over the next two financial years.”
Earlier, in May, while upgrading its outlook on the company, S&P said that it expects operating conditions at Vedanta’s India businesses to stabilise over the next 12-24 months after several operating difficulties over the past two years.