BHUBANESWAR: Even as the Tamil Nadu government stands firm on taking resolute measures for the permanent closure of Vedanta group’s Sterlite copper plant, rating agencies say the closure is marginally negative for the firm and will not materially affect its cash flows.
“The cash flows from Vedanta’s Indian copper smelting operations were marginal compared to gross cash flows, but they provided cash flow diversity,” said S&P credit analyst Vishal Kulkarni in a statement.
According to Kulkarni, the diversified natural resources company faces a number of operational headwinds in India, including domestic coal supply constraints and potentially higher taxes on crude oil producers. These could test Vedanta’s cash flow targets if realised, he said.
On the copper smelter in Thoothukudi, Kulkarni said the closure is materially negative for the company’s cash flows because the smelting operations provided only about five per cent (roughly $200-$225 million) of Vedanta’s gross annual EBITDA.
While Vedanta could pursue legal proceedings to restart existing smelter operations, this would likely be a lengthy process. The smelter operations have in place certain working capital arrangements such as bank-funded trade payables and customer advances. The Anil Agarwal-led firm will need to reconfigure such financing, including fresh local borrowings, Kulkarni said.
“While we consider these arrangements debt-like, and thus add them to our adjusted debt, we do not expect the reconfiguration to change our assessment of the company’s leverage,” he noted.
Despite such headwinds, S&P expects the company’s financial ratios will continue to improve. “We continue to anticipate that Vedanta’s aluminium operations in India will continue to ramp up this year and produce two million tonnes of metal. We expect the segment to improve in FY19, supported by better coal and bauxite supply linkages,” he said.
The Tamil Nadu government had earlier this week ordered the state Pollution Control Board to seal and “permanently” close Vedanta’s copper plant following violent protests over pollution concerns, during which 13 people were killed in police firing.