New Delhi: Rating agencies S&P and Moody's have upgraded Vedanta Resources after Cairn India shareholders cleared the planned merger of the cash-rich oil company with the debt-laden Vedanta Ltd.
S&P Global Ratings today said it has revised its outlook on Vedanta Resources to positive from stable while Moody's Investors Service raised the London-listed firm's corporate family rating (CFR) to B1 from B2 with a stable rating outlook.
S&P Global Ratings credit analyst Mehul Sukkawala said: "We revised the outlook to reflect our expectation that Vedanta Resources operating performance will improve on higher metal prices and the company's continuing ramp-up of its aluminum operations."
The outlook revision also reflects the agency's view that the firm's financial flexibility will improve on better performance and the expected merger of Vedanta Ltd and Cairn India as this will help reduce refinancing risks for Vedanta Resources, he added.
"This will result in a significant jump in free operating cash flow generation at Vedanta Ltd as well as easier access to more than USD 3 billion in cash and cash equivalents at Cairn India even though Vedanta Resources' financial ratios will remain largely unchanged," S&P said.
Moody's Vice-President Kaustubh Chaubal said: "Upgrade of Vedanta's ratings reflects Moody's expectation of the relative improvement in commodity prices and resultant increase in the company's earnings and cash flow, the company's progress in reducing absolute debt levels and the high probability of a successful merger of Vedanta Ltd and Cairn India."
This will improve the group's liquidity and enhanced financial flexibility, which in Moody's view could result in debt reduction, further improving leverage, he added.
The merger that now awaits regulatory and court approvals is expected to be completed by March 2017, Moody's said.
"When successful, it will provide Vedanta Ltd with better access to Cairn India's large cash balances of USD 3.5 billion as of June 2016 and future cash surpluses, as previous access was possible only through the up-streaming of dividends," it added.
