Credit Suisse notes risks to Vedanta from new Indian legislation

3rd Jan 2012 13:11

Analysts at Credit Suisse are today reacting to news reports that Indian authorities have raised the export tax on all grades of iron ore from 20% to 30% putting further pressure on exports. Coupled with project delays in Brazil they now believe that iron ore prices may stay higher for longer.However, whereas companies such as Rio Tinto or Ferrexpo may benefit the opposite is true of Vedanta, as the company´s operating profits in terms of EBITDA (earnings before interest, taxes, depreciation and amortization) may be reduced by close to $150m as a result.As well, the increased taxation comes just as the company has taken on new debt to finance its acquisition of Cairn India. More specifically, Credit Suisse believes that the margin of error for the company to be able to meet its debt covenants (particularly that which requires Vedanta to maintain an EBITDA to gross interest ration of 4) is "thin" when looking out to fiscal year 2013.Credit Suisse rates shares of Vedanta at neutral.As 13:05AM shares of Vedanta are rising by 1.87% to 1,034p. AB