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On September 27, Vedanta, a company promoted by Anil Agarwal, witnessed a significant setback as its shares plummeted by 6 percent, reaching a 52-week low of Rs 210 per share. This drop followed Moody's Investor Service's decision to downgrade Vedanta's corporate family rating from Caa1 to Caa2. Over the past three months, Vedanta's stock has seen a sharp decline of 24 percent, in stark contrast to the benchmark Sensex, which saw a 5 percent rise. Notably, Vedanta had previously hit a 52-week low of Rs 222 per share on September 22.

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Moody's downgrade

 Moody's further downgraded the rating on senior unsecured bonds, moving it from Caa2 to Caa3. This downgrade affected bonds issued by Vedanta Resources Limited (VRL) and its wholly-owned subsidiary, Vedanta Resources Finance 11 Plc, which are guaranteed by VRL. Additionally, Moody's maintained a 'negative' outlook on Vedanta.

The reason behind the downgrade, as cited by the ratings agency, is the heightened risk of debt restructuring in the coming months. Moody's expressed concerns because VRL had not shown substantial progress in refinancing its upcoming debt obligations, particularly the $1 billion bonds set to mature in January 2024 and August 2024.

Understanding Moody's ratings

On Moody's rating scale, a Caa rating signifies obligations considered speculative and of poor standing. These obligations carry a very high credit risk. The '1' modifier indicates the higher end of this rating category, while '3' denotes the lower end.

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Previous credit outlook revisions

This downgrade from Moody's follows earlier credit outlook revisions by Crisil and India Ratings. In March, Crisil had revised its outlook for Vedanta from stable to negative, citing concerns about the company's financial leverage and financial flexibility. India Ratings also adjusted its outlook to negative due to the increased risk associated with refinancing at a higher borrowing cost. Vedanta's recent challenges and credit rating downgrades highlight the complexities and uncertainties facing the company in the current financial landscape.