Foxconn-Vedanta JV split credit negative for UK conglomerate: CreditSights

A decision by Taiwan’s Foxconn to withdraw from a $19.5 billion semiconductor joint venture with Vedanta is a “credit negative” for the Indian conglomerate’s UK parent Vedanta Resources, debt research firm CreditSights said on Thursday.

Earlier this week, Foxconn said it had withdrawn from the JV, dumping a deal they had signed last year to set up semiconductor and display production plants in India. Vedanta on Wednesday said it would still enter the space this year having lined up partners.

CreditSights had previously expected a “minimal credit impact” on Vedanta Resources based on the old arrangement, as Volcan, Vedanta’s holding entity was undertaking the semiconductor investments.

“Since the semiconductor venture will be now parked directly under Vedanta, we see a higher probability that a good portion of the project funding will come from Vedanta,” CreditSights, part of the Fitch Group, wrote in a note.

CreditSights also expects further strain on credit metrics and free cash flows for both Vedanta Resources and India’s Vedanta with Foxconn’s exit also resulting in a loss of a partner to split manufacturing costs.

However, the debt research firm said the split does not increase Vedanta’s immediate funding needs as the investment is long term in nature and a previously announced 5-10-year timeline to build the facilities would help the conglomerate spread the capital expenditure more comfortably.

CreditSights maintained its “buy” rating on Vedanta Resources’ bonds saying its refinancing outlook for some debt maturities have improved, helped by $1.3 billion of fresh loan fundraisings.

It said its bullish rating was for investors with a high risk appetite and a failure to refinance debts would result in a sharp sell-off in already-volatile bond prices.