Fitch Maintains Rating Watch Negative on Cairn India Holdings; Withdraws Ratings
(The following statement was released by the rating agency) Fitch Ratings-Singapore-16 September 2020: Fitch Ratings has maintained Cairn India (NS: CAIL ) Holdings Limited (CIHL) Long-Term Issuer Default Rating of 'B+' on Rating Watch Negative (RWN). Fitch has also simultaneously withdrawn the ratings. The agency will no longer provide ratings or analytical coverage of this issuer. Fitch placed CIHL's rating on RWN on 10 June 2020 after Vedanta Resources Limited (VRL) said it planned to delist the shares of its Indian subsidiary and CIHL's parent, Vedanta Limited (VLTD). CIHL's rating is aligned with the credit profile of VLTD, reflecting their strong linkages and VLTD's 100% ownership of CIHL The ratings were withdrawn with the following reason: For Commercial Purposes Key Rating Drivers Weaker Profile Under Delisting Plan: The RWN reflects the risk that should the delisting succeed, Fitch would assess the linkage between VRL and VLTD as 'Strong', rather than 'Moderate', and the agency will view the group as a single economic block, as VRL will own 100% of VLTD, which will hold 100% of CIHL. This will result in Fitch assessing the VLTD's credit profile based on the consolidated VRL group, which we believe is weaker. The rating is maintained on RWN as the delisting has not been completed. The company is in process of getting the relevant regulatory approvals and plans to launch the reverse book building process after that. For details on the key rating drivers see "Fitch Places Cairn India Holdings on Rating Watch Negative on Delisting Plan", published 10 June 2020 at https://www.fitchratings.com/site/pr/10125371. CIHL has an ESG Relevance Score of 4 for Governance Structure, which reflects issues related to overall board structure and composition, and effective management control. Our assessment does not factor in any cash leakage from VLTD or CIHL, aside from the dividends to VRL. CIHL invested in a structured product originated by VRL's shareholder Volcan Investment Limited in January 2019, and it was subsequently unwound profitably in August 2019. Various investors at the group voiced opposition to the transaction and VRL has since committed to abstain from similar transactions in the future. However, Fitch believes that absence of large and vocal minority investors at VLTD after the delisting might make it easier for Volcan to access the cash at the operating companies for its liquidity needs. RATING SENSITIVITIES No longer applicable as the ratings have been withdrawn. Best/Worst Case Rating Scenario International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. Criteria Variation Fitch applied its Parent and Subsidiary Rating Linkage criteria to derive the credit profile of VLTD. In case of an assessment of 'Strong' or 'Moderate' linkages between a weaker parent (VRL) and stronger subsidiary (VLTD), the criteria establish that the Issuer Default Ratings for both are likely to be based on the consolidated credit profile. However, the committee assessed VLTD's credit profile as better than the consolidated group profile. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG Considerations CIHL has an ESG Relevance Score of 4 for Governance Structure, which reflects issues related to overall board structure and composition, and effective management control. These have a negative impact on the rating. Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. Cairn India Holdings Limited; Long Term Issuer Default Rating; Rating Watch Maintained; B+; RW: Neg ; Long Term Issuer Default Rating; Withdrawn; WD Contacts: Primary Rating Analyst Shubha Sethi, CFA Associate Director +65 6796 7245 Fitch Ratings Singapore Pte Ltd. One Raffles Quay #22-11, South Tower Singapore 048583 Secondary Rating Analyst Mohit Soni, Associate Director +91 22 4035 6163 Committee Chairperson Vicky Melbourne, Senior Director +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234, Email: email@example.com Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 01 May 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10120170) Parent and Subsidiary Linkage Rating Criteria (pub. 26 Aug 2020) (https://www.fitchratings.com/site/re/10133830) Sector Navigators - Addendum to the Corporate Rating Criteria (pub. 26 Jun 2020) (https://www.fitchratings.com/site/re/10125796) Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). 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