Fitch Ratings has assigned India's Vedanta Aluminum Limited a National Long Term Rating of 'Fitch A-(ind). The Outlook is Stable. The agency has also assigned VAL's INR 5.0 billion non fund based facilities and USD 125 million non fund based facilities ratings of 'Fitch A-(ind)'/'Fitch A2+(ind)'. A list of outstanding ratings is provided at the end of this commentary.
The ratings benefit from VAL's strong linkages with its parent, Vedanta Resources Plc driven by the key role VAL is expected to play in the parent's global aluminum strategy. The strong linkage is also reflected in VRPLC and another subsidiary Sterlite Industries India Limited guaranteeing over 90% of VAL's total external debt. VAL has also received unsecured loans from Sterlite and other group companies.
The ratings are, however, constrained by the non-availability of captive bauxite mines for VAL which results in higher operating costs and low profitability. VAL's EBITDA margin declined to 14.4% in FY2011 from 24.1% in FY2010. Also only a small part of VAL's aluminum production is likely to be in the form of value added products.
VAL's plans to expand the capacity of its 1.4 million tonne per annum alumina refinery to 5 million tonne per annum have been put on hold due to lack of approvals for captive bauxite mines with delays in receipt of requisite clearances. Also, although VAL has completed about 75% of its CAPEX for a 1.25 million tonne per annum smelter, the operations are likely to be delayed given the absence of backward integration. The delay is likely to negatively affect the returns on the project.
The large debt funded CAPEX has resulted in high interest costs for VAL, which in turn led to a net loss of INR 9,592 million in FY2011. Total debt as of FY2011 was INR 265.9 billion. The company has consolidated most of its debt with an extended repayment schedule and Fitch notes this may have a positive impact on VAL's liquidity which is driven by its strong refinancing ability with the support of its sponsors.
Incorporated in 2001, VAL is a majority-owned subsidiary of VRPLC, which owns 70.5% of its equity with Sterlite holding the remaining stake. The company also operates a 500,000 tonne per annum aluminum smelter at Orissa along with captive power.
(Sourced from www.worldal.com)
