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Singapore, June 17, 2009 -- Moody's Investors Service has today affirmed the Ba1 corporate family rating and Ba2 senior unsecured rating of Vedanta Resources plc ("Vedanta"). The outlook on the ratings is stable. The rating action follows the acquisition by Vedanta's subsidiary Sesa Goa of the mining assets of the Dempo Group for US$368 million; Vedanta's offer to increase its shareholding in Sesa Goa from 53.1% to 55% for around US$120 million; and Vedanta's issuance of a $1.25 billion convertible bond. "The acquisitions at Sesa Goa level are relatively small in their actual amounts as compared to the group's size, and are in line with the company's strategy to increase its iron ore capacity while streamlining the group structure by increasing shareholdings in those subsidiaries that it does not fully own," says Ivan Palacios, a Moody's AVP/Analyst. "Nevertheless, the announced acquisitions will reduce the company's cushion within its current rating. These acquisitions add to an already heavy expansion plan, which includes the acquisition of minority interests in BALCO and Hindustan Zinc, the potential acquisition of Asarco, and an ambitious capital expenditure program, of which US$7.6 billion is yet to be spent," says Palacios, also Moody's lead analyst for the company. In Moody's view, Vedanta's US$1.25 billion convertible bond issuance improves the company's near-term liquidity profile. In addition, the amount raised is in line with Moody's expectations when Vedanta was downgraded to Ba1 in December 2008. However, the convertible bond issuance and the drawings on the long-term project finance that Vedanta has recently secured will together increase the company's on-balance-sheet leverage -- which stood at US$5.1 billion as of FY2009 -- and weaken its credit metrics. "As a result of the aggressive expansion strategy, the incremental debt funding and the expectation of weaker near-term performance due to the challenging environment for base metals, Moody's believes that Vedanta's key financial metrics could temporarily exceed the tolerance level set for the rating", says Palacios. "However, Vedanta's stable outlook is supported by the expectation that its financial profile will strengthen again beyond FY2010, once the new projects gradually come on-stream and start generating the expected returns," adds Palacios. The rating also assumes continued covenant compliance management by the issuer. In this context, downward rating pressure could develop in the event that weaker-than-expected profitability reduces significantly the headroom under Vedanta's financial covenants. Vedanta's stable outlook is underpinned by its strong liquidity profile, and Moody's expectation of a progressive improvement in the company's financial profile beyond FY2010. This is balanced against a very challenging operating environment, as well as the risk of further investments beyond the large amount already committed. Moody's notes, however, that there is limited tolerance in the rating for further debt-financed expansion plans or further weakness within the operating environment for base metals. Positive pressure on the rating could develop if 1) demand and price levels for base metals stabilise; 2) the planned expansion projects start generating the expected returns; 3) there is evidence of a stable and sustainable business profile for the company; and 4) there is an improvement in the company's complex structure. The rating could see upward pressure once the company demonstrates a sustainable ability to maintain the following financial metrics on a consistent basis: CFO (less dividends)/Adjusted debt over 25% - 30%, Adjusted Debt/ EBITDA below 2.5x -- 3.0x, and EBIT interest coverage over 5.0x -- 6.5x. Conversely, the ratings could come under downward pressure if 1) Vedanta's profitability declines beyond Moody's expectations for FY2010; 2) it undertakes further acquisitions, investments or shareholder remuneration policies that include incremental debt; or 3) it fails to satisfactorily execute its expansion projects. Credit metrics that Moody's would consider for a ratings downgrade include CFO (less dividends)/Adjusted Debt below 15%, Adjusted Debt to EBITDA exceeding 4x, or EBIT interest coverage declining to 3.5x or less on a sustained basis. The last rating action with regard to Vedanta was taken on March 10, 2009, when Moody's stated that Vedanta's proposed acquisition of Asarco for US$1.7 billion could be accommodated within the company's Ba1 rating. The principal methodology used in rating Vedanta was "Rating Methodology: Global Mining Industry", which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory. Headquartered in London, UK, Vedanta Resources plc is a metals and mining company focusing on integrated zinc, alumina/aluminum and copper smelting and refining and iron ore mining. Its operations are predominantly located in India. It is listed on the London Stock Exchange and is 59.06 % owned by Volcan Investments Ltd.