MUMBAI: The proposed delisting of the Anil Aggarwal-led Vedanta Resources from the London Stock Exchange will have no immediate impact on its credit profile, although cash extraction risks remain from the announced complete takeover of the natural resources firm by its holding company, Volcan Investments Ltd., Moody's Investor Service said on Thursday.
Earlier this week, Vedanta Resources and Volcan Investments, a holding company wholly owned by the Anil Agarwal discretionary trust, which owns a 66.53 per cent stake in Vedanta, announced it had reached an in-principle agreement on a possible all-cash offer for Vedanta's remaining shareholding.
"A firm offer will require Volcan to pay an estimated $1 billion toward acquiring the balance stake of 33.47 per cent. If Volcan succeeds in increasing its stake to 90 per cent or above, it is likely that Vedanta will be delisted from the London Stock Exchange, making it a private company," a Moody's statement said.
"The delisting will not immediately affect Vedanta's credit profile or rating. This is based on our expectation that Volcan will not extract incremental cash from Vedanta to provide additional liquidity for itself.
"However, if Volcan requires Vedanta to pay higher dividends to service its cash needs, it will tighten Vedanta's cash flow, adding pressure to the Ba3 corporate family rating," it said.
"Vedanta's rating is based on the consolidated credit profile of Vedanta and its subsidiaries and does not take into account Volcan's indebtedness. Any change in Vedanta's policies, such that Vedanta is used as a financing vehicle for Volcan, will be viewed negatively and will also weigh on Vedanta's credit profile and rating," it added.
The American rating agency said Volcan is a private company with limited public information on its finances.
In 2017, Volcan raised an estimated $4.4 billion debt through the issue of convertible notes to buy a 19.35 per cent equity stake in Anglo American plc pledging 33 per cent of Vedanta shares as security for annual interest payments of $185 million.
Vedanta has a requirement under its bank loans to remain a listed company and will, therefore, need approval or waivers from its lenders prior to delisting.
"The reporting and disclosure requirements for private companies are less stringent than for London-listed public companies," Moody's said.
For instance, private unlisted companies are not required to report when any of their shareholding is pledged against any borrowings.
"However, given its substantial access to international capital markets with $5.9 billion in debt outstanding at the holding company in the form of US dollar bonds and loans, we expect Vedanta to maintain its hitherto transparent reporting on operations even after it becomes a private entity," it said.
"When successful, the proposed offer will result in Volcan as Vedanta's sole shareholder, but Vedanta's corporate structure remains highly complex with less than 100 per cent ownership in its key operating assets," it added.