DJ Moody's Confirms Vedanta's Credit Ratings; Outlook Change

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DJ Moody's Confirms Vedanta's Credit Ratings; Outlook Changed To Negative
25/07/2011 12:32 | Vedanta Resources PLC

The following is a press release from Moody's Investors Service:

Singapore, July 25, 2011 -- Moody's Investors Service has today confirmed
Vedanta Resources Plc's ("Vedanta") Corporate Family Rating of Ba1 and
Senior Unsecured Bond Rating of Ba2. At the same time Moody's has changed
the outlook on the ratings to negative.

This rating action closes the review for downgrade initiated on August
17, 2010, after Vedanta announced the proposed acquisition of a
controlling stake (of up to 60%) in Cairn India Ltd. (CIL) for $9.6
billion or less. On 21 December, 2010 and April 18, 2011, Moody's
announced the continuation of its review of Vedanta.

Although Moody's had indicated in its April announcement that a downgrade
was likely following the closing of the Cairn transaction, Vedanta has
since been able to reduce the purchase price of CIL by some $625 million,
while at the same time issuing bonds of $1.65 billion and arranging a new
$500 million term facility, thus improving liquidity. Furthermore, the
continuing buoyancy of commodity prices and Vedanta's ability to increase
output from existing operations will result in a lower than expected
increase in external net funding needs, when the remaining 30% of CIL it
seeks, is purchased. As a result, Moody's has now ultimately decided to
confirm Vedanta's ratings, albeit with a negative outlook.

"We expect the acquisition of Cairn India to be completed within a few
weeks, with ONGC and Cairn agreeing on the royalty issue. To the extent
that Cairn has lowered the effective price and Vedanta has now built up a
28.5% stake, the financial parameters of the transaction should hold no
surprises" says Alan Greene, a Moody's Vice President -- Senior Credit
Officer.

"However, we have retained the negative outlook given our continuing and
various concerns about the Group. The likely timeframe of the negative
outlook is an opportunity for Vedanta to tackle some of these areas --
namely to beef up the Parent's balance sheet,to bring to market
much-heralded IPOs of two subsidiaries, to work through some regulatory,
environmental and tax challenges in India and, of course, to bed-in the
large Cairn acquisition", adds Greene, also Moody's lead analyst for
Vedanta.

Moody's notes that the acquisition debt is being raised at the Parent
company level and the implications this has for subordination within the
Group, and the standalone credit quality of the relatively thinly
capitalized Parent. The lack of cash profits generated by the Parent and
Moody's concerns over the mechanics of upstreaming dividends from the
operating and intermediate companies, represent subordination. As a
result, the rating of senior unsecured debt issued by, or guaranteed by,
the Parent is lower by one notch, relative to the CFR. The gap could
potentially widen, if there is any deterioration in the relative strength
of the Parent company balance sheet or the quality of its earnings.

Moody's notes that mooted IPOs of its African copper business, Konkola
Copper Mines and of Sterlite Energy have not progressed. Similarly,
development of the aluminium business has been deferred following
difficulties sourcing bauxite domestically, although the smelters'
captive power units have been supporting Vedanta's energy earnings.

Sesa Goa's recent purchase of a small, part-built steel works in India
represents another diversification which might mark the start of another
business vertical, that of integrated steelmaking, that could require
significant investment. In the medium-term this purchase could help
mitigate the tightening of controls over its iron ore exports out of
India.

Moody's notes that there is limited tolerance in the rating for further
debt-financed expansion plans or weakness within the operating
environment for commodities.

The outlook could be stabilized if Vedanta 1) successfully integrates
CIL, with evidence of a stable and sustainable production and business
profile; 2) the planned expansion projects start generating the expected
returns; 3) there is evidence of a stable and sustainable business
profile for the company; and 4) the relatively weak capitalization of
the Parent is addressed. At this juncture we see no upward pressure on
the rating as the outlook already reflects our expectation of some
improvement in credit metrics as a mitigating factor for the qualitative
considerations outlined. On a consolidated basis, Vedanta's credit
metrics are strong and approaching those of investment grade rated peers.

Conversely, the ratings could come under downward pressure if the company
1) faces further challenges in the oil and gas operations under CIL; 2)
the Parent remains thinly capitalized with less than expected dividends
upstreaming from the core operating subsidiaries; 3) undertakes further
acquisitions, investments or shareholder remuneration policies that
include incremental debt; or 4) it fails to satisfactorily execute its
expansion projects. Credit metrics that Moody's would consider for a
ratings downgrade include CFO (less dividends)/Adjusted Debt below 15%,
Adjusted Debt to EBITDA exceeding 3.5-4.0x, or EBIT interest coverage
declining to 3.5x or less on a sustained basis.

The principal methodology used in rating Vedanta is Rating Methodology on
Global Mining Industry published in May 2009..............................
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http://www.morningstar.co.uk/uk/markets ... 2509748642
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Commentaire : Voila donc Vedanta OBLIGE de procéder à la mise en bourse de KCM à court terme,...... il est vrai quelque peu contraint par les règles de marché ...et Moodys