Moody’s, a leading credit rating agency, has downgraded the credit rating of Vedanta Resources, a London-listed mining and metals company based in India, citing rising refinancing risks amid challenging market conditions.

The credit rating was lowered from Ba3 to B1, which means that it is now considered to be a “highly speculative” investment. It is worth noting that Moody’s has been a long-standing critic of Vedanta, as the company has a history of governance and environmental issues, which have raised concerns among investors.

Moody’s has highlighted two key concerns that have led to the downgrade of Vedanta’s credit rating. Firstly, the agency is concerned about the company’s ability to refinance its maturing debt, given the challenging market conditions, which have been exacerbated by the COVID-19 pandemic.

Vedanta has a significant debt burden, with over $9 billion of debt due for refinancing between 2021 and 2023, which is a concern for Moody’s. In addition, Vedanta has been impacted by the pandemic, with shutdowns at its operations in India and Zambia, which have affected its cash flow.

Secondly, Moody’s has expressed concerns about Vedanta’s high leverage, which has increased significantly over the past few years due to acquisitions and capital expenditure. The company’s net debt stood at $7.9 billion as of September 2020, up from $6.8 billion at the end of March 2020.

Moody’s has stated that Vedanta’s leverage could remain high, given the uncertainty surrounding the timing and scale of cash flows from its operations, which could affect the company’s ability to meet its debt obligations.

This downgrade is significant for Vedanta, as it could make it more difficult and expensive for the company to refinance its debt in the future. A lower credit rating also indicates that investors perceive Vedanta’s credit risk to be higher, which could lead to a higher cost of borrowing in the future.

However, Vedanta has rejected Moody’s downgrade, stating that it does not reflect the company’s financial position or operational performance. The company has highlighted that it has implemented cost-cutting measures and has a strong liquidity position, with cash and cash equivalents of $3.6 billion as of September 2020.

Vedanta has also stated that it is committed to reducing its debt levels and has identified non-core assets that it plans to sell, which could enable it to reduce its debt burden. The company plans to reduce its net debt to $6.5 billion by March 2021 and $4-4.5 billion by March 2022.

Despite these measures, it is clear that Vedanta’s creditworthiness has been impacted by the challenging market conditions and the pandemic. The company is not alone in facing refinancing risks, as many companies have been affected by the economic downturn and are struggling to service their debt.

The downgrade by Moody’s also highlights the importance of governance and sustainability issues for investors. Vedanta has faced criticism from environmental groups and local communities for its mining activities in India, which has led to protests and legal challenges.

Governance and environmental issues can impact a company’s reputation and risk profile, as well as its access to capital. Investors are increasingly taking these factors into account when assessing companies, and those that fail to address them could face higher borrowing costs and difficulties in accessing capital.

Overall, Moody’s downgrade of Vedanta’s credit rating is a warning to companies that are facing refinancing risks amid challenging market conditions. It highlights the importance of managing debt levels and cash flows, as well as addressing governance and sustainability issues to maintain investor confidence and access to capital.