BL reported that a day after the London Stock Exchange listed Vedanta Resources Plc announced plans to acquire Cairn India assets for USD 9.6 billion; Fitch Ratings downgraded the company's long term Issuer Default Rating to BB+ from BBB- and placed it on rating watch negative.

The downgrade reflects the substantial size of the CIL acquisition, in relation to Vedanta's existing cash flows and debt levels, as well as the added risk of the latter's lack of track record in the oil and gas sector.

Fitch downgraded Vedanta's USD 500 million bond and USD 750 million bond to BB from BB+ and simultaneously placed the bonds on rating watch negative. The bond ratings continue to be notched down from the IDR to reflect the company's fragmented holding structure and the presence of material minority interest at key subsidiaries.

However, if the deal does not conclude and the transaction is reversed, there could be a positive impact on the ratings, assuming that Vedanta's earlier business plan and strategy remain unchanged.

Although the acquisition will be EBITDA accretive from FY2011, which partly offsets the acquisition risks, the extent of earnings and cash flow it generates would depend on the pace of ramp-up of production which should be visible from H2 FY2011.

(Sourced from Business Line)