The tender offer will be funded from the term loan raised at Vedanta Resources PLC and the funds received through the part repayment of an intercompany loan by Vedanta Ltd.
However, Moody's final treatment of the offer will depend on the settlement price, which will become known when the offer closes on 18 January.
Vedanta Resources plc's Ba2 corporate family rating and B1 senior unsecured rating, as well as the negative ratings outlook, are unaffected by the offer.
On 11 January 2016, Vedanta Resources announced an offer to repurchase for cash up to $500 million of its outstanding $1.134 billion convertible bonds due July 2016.
The offer impacts only around 3% of Vedanta Resources' total outstanding debt.
The offer will be conducted as a modified Dutch auction and it allows the company to increase or decrease the offer amount.
The tender offer will be funded from the term loan raised at Vedanta Resources PLC and the funds received through the part repayment of an intercompany loan by Vedanta Ltd.
"Moody's is likely to view the contemplated deal as an opportunistic buyback since the issue of default avoidance is currently unclear, pending the emergence of clarity on the purchase price" says Kaustubh Chaubal, a Moody's Vice President and Senior Analyst.
"However, a distressed exchange could materialize if the note-holder losses exceed current expectations, estimated based on current market prices," adds Chaubal, who is also Moody's lead analyst for Vedanta Resources.
"While Vedanta Resources has not stated any intention on further buybacks, additional discounted note repurchases may be treated as a distressed exchange when viewed in combination with the current proposed transaction," says Chaubal.
Moody's definition of distressed exchanges, which we consider a default, captures cumulative losses for investors.
Although this offer does not affect Vedanta Resources' ratings, the persistent weakening in energy and metals prices since November 2015 has increased negative pressure on the ratings.
The principal methodology used in these ratings was Global Mining Industry published in August 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Headquartered in London, Vedanta Resources plc is a diversified resources company with interests mainly in India. Its main operations are held by Vedanta Ltd, a 62.9%-owned subsidiary which produces zinc, lead, silver, aluminum, iron ore and power.
In December 2011, Vedanta Resources acquired control, of Cairn India Ltd (CIL), an independent oil exploration and production company in India, which is a 59.9%-owned subsidiary of Vedanta Ltd.
On June 14 2015, Vedanta Ltd announced the proposed merger of CIL with itself, in a cash-less all-stock transaction, subject to approvals. If the merger goes through as announced, Vedanta Resources' shareholding in Vedanta Ltd will decline to 50.1%.
Listed on the London Stock Exchange, Vedanta Resources is 69.8% owned by Volcan Investments Ltd. For the year ended March 2015, Vedanta Resources reported revenues of US$12.9 billion and EBITDA of US$3.7 billion.
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