Copper plant closure won’t hit Vedanta’s cash flows: S&P

‘Smelting provided only about 5% of gross annual EBITDA’

A private security guard stands in front of the main gate of Sterlite Industries Ltd's copper plant in Tuticorin, in the southern Indian state of Tamil Nadu March 24, 2013. Sterlite Industries, a unit of London-based Vedanta Resources, which operates India's biggest copper smelter, which has been shut by authorities despite the firm denying its smelter was to blame for emissions in the area on March 23. Since opening in 1996, the plant has split the coastal city of Tuticorin between residents who say it is crucial for the local economy and farmers and fishermen who see it as a health hazard. Similar debates are playing out across India where disputes over safety, the environment and livelihoods overshadow the efforts of Asia's third-largest economy to industrialize. Picture taken March 24, 2013. To match story INDIA-STERLITE/TOWN REUTERS/Stringer (INDIA - Tags: BUSINESS COMMODITIES ENVIRONMENT)

The closure of Vedanta Resources Plc.’s Indian copper smelter is marginally negative for the company and will not materially affect its cash flows, S&P Global Ratings said on Thursday.

The Tamil Nadu government, this week, ordered the State Pollution Control Board to seal and “permanently” close the Vedanta group’s copper plant in Thoothukudi following last week’s violent protests over pollution concerns during which 13 people were killed in police firing.

“The cash flows from Vedanta’s Indian copper smelting operations were marginal compared with gross cash flows, but they provided cash flow diversity,” S&P credit analyst Vishal Kulkarni said in a statement.

At the same time, the company faces a number of operational headwinds in India, including domestic coal supply constraints and potentially higher taxes on crude oil producers. These issues could test Vedanta’s cash flow targets, if realised, S&P added. “Despite such headwinds, we expect the company’s financial ratios will continue to improve.”

‘Lengthy legal process’

S&P further said that while the company could pursue legal proceedings to restart existing smelter operations, this would likely be a lengthy process.

“We don’t expect the closure to be materially negative for Vedanta’s cash flows because the smelting operations provided only about 5% (roughly $200 million-$225 million) of Vedanta’s gross annual EBITDA,” S&P said in the statement.