The 3 Week Diet System

Monday, May 4, 2015

Vedanta’s $3.1bn impairment in Cairn India tarnishes its acquisitive strategy

May 04:

Last Wednesday, Vedanta Ltd (unrated) announced that it had taken an INR191.8 billion (around $3.1 billion) impairment on its $8.7 billion acquisition of Cairn India Ltd (CIL, unrated) to reflect its expectation that oil prices will remain weak for some time. Vedanta Ltd owns 59.9% of CIL, which it purchased in 2011. The $3.1 billion impairment is credit negative for Vedanta Resources Plc (Vedanta, Ba1 negative), which owns 62.8% of Vedanta Ltd, because it implies a longer payback period for the acquisition and increases the challenge of repaying $4.4 billion of acquisition debt financing from its operating cash flow, Moody's said in its Credit Outlook today. Vedanta Ltd’s massive impairment – 35% of the original acquisition price – highlights the eroded value of its oil and gas assets since 2011. The $3.1 billion impairment reflects the high price that Vedanta paid for CIL at the peak of the oil and gas cycle, when Brent crude prices exceeded $100 per barrel, Moody's added. On Friday, the closing price was $66 per barrel. Although the non-cash write-down will not immediately affect key credit ratios, it reflects the lasting effect of the lower oil prices on Vedanta’s business profile, which underpinned our change to its rating outlook to negative from stable in January. ​​Vedanta’s investments in CIL will take longer to recoup. Since its acquisition of CIL in December 2011, Vedanta has received some $250 million in upstreamed dividends from CIL, which have been used to service the acquisition debt. As reflected by the impairment, Vedanta’s investment in CIL will reduce cash flow, making it more difficult for Vedanta to pay down debt. We expect Vedanta’s leverage to remain above the 3.5x-4.0x range for at least the next two years, Moody's said. - See more at:


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