CHENNAI (Reuters) – Taiwan’s Foxconn’s decision to withdraw from a $19.5 billion semiconductor joint venture with Vedanta is a “credit negative” for the Indian conglomerate’s British parent, Vedanta Resources, the research firm said on Thursday Debt CreditSights.
Earlier this week, Foxconn said it had pulled out of the JV, scrapping a deal they signed last year to set up semiconductor and display production plants in India. Vedanta said on Wednesday that he would still enter the space this year after aligning partners.
CreditSights had previously expected a “minimal credit impact” on Vedanta Resources based on the earlier deal, as Volcan, Vedanta’s parent entity, was in charge of the semiconductor investments.
“Given that the semiconductor company will now be parked directly under Vedanta, we see a greater likelihood that a good portion of the project’s funding will come from Vedanta,” CreditSights, part of Fitch Group, wrote in a note.
CreditSights also expects further pressure on credit metrics and free cash flows for both Vedanta Resources and India’s Vedanta, and Foxconn’s exit will also result in the loss of a partner to split manufacturing costs.
However, the debt research firm said the split does not increase Vedanta’s immediate financing needs as the investment is long-term in nature and a previously announced 5-10 year timeline to build the facility would help the conglomerate. spread out capital spending more comfortably.
CreditSights maintained its “buy” rating on Vedanta Resources’ bonds and said its refinancing outlook for some debt maturities has improved, thanks to $1.3 billion of new loan funding.
He said his bullish rating was for investors with a high appetite for risk and that a failure to refinance debt would lead to a sharp sell-off in already volatile bond prices.
(Reporting by Praveen Paramasivam in Chennai; Editing by Nivedita Bhattacharjee)