ICRA Downgrades Shapoorji Pallonji Rating, Revises Outlook To Negative

Rating agency ICRA on Thursday downgraded the long-term rating of Shapoorji Pallonji and Company Pvt. Ltd. to ‘A+’, from ‘AA-’, and short-term ratings to 'A1' from 'A1+', citing lower-than-anticipated progress achieved by the company in terms of its deleveraging plans through equity infusion and asset monetisation.

The agency also removed the rating from the watch with developing implications and assigned a negative outlook.

The developments come in the wake of reports about the Group exploring several options, including making Eureka Forbes public or selling stake in its engineering firm Forbes and Company to pay back the loans it had taken from the solar company Sterling Wilson Solar.

The loan was supposed to be repaid within a period of 90 days of the date of listing, however, only Rs 250 crore of this has been repaid, leaving an outstanding amount of Rs 2,341 crore.

On Aug. 20, when Sterling Wilson Solar was listed on the exchanges, the dues stood at Rs 2,563 crore. The promoters currently hold 77.22 percent stake in this firm.

Sterling Wilson Solar managed to realise Rs 2,850 crore from the initial public offering before expenses and taxes compared to the anticipated realisation of Rs 4,500 crore.

According to ICRA, the promoters have infused a total of Rs 2,270 crore in SPCPL during the first quarter this fiscal, including Rs 1,900 from the proceeds of the Sterling & Wilson Solar's IPO.

"However, contrary to the expectations, the net debt levels have not come down because the same has been deployed to meet the funding requirements of several group companies, especially in the real estate business, both for meeting their debt obligations as well as construction finance to complete the ongoing projects," it said.

The agency has also taken note of reduction in the reported contingent liabilities (financial guarantees and DSRA support) from Rs 2,942 crore as on March 31, 2019 to Rs 2,412 crore as on Sept. 30, 2019, through a combination of funds from SPCPL as well as project level cashflow linked debt.

"The company has made slower-than-expected progress on its asset monetization plans that has delayed the planned deleveraging of its balance sheet," it said.

While ICRA expected major reduction in the standalone debt profit post the receipt of Rs 1,900 crore (SPCPL’s share) from the IPO of SWSL, the proceeds were largely deployed towards meeting the commitments (including debt obligation) of various group companies.

"Timely conclusion of other monetisation, including unlocking equity value in some of the unlisted entities in the group, and utilisation of the proceeds towards standalone debt reduction would be a key rating monitorable," it added.

ICRA further said SPCPL remains exposed to high refinancing risk with Rs 2,884 crore of debt repayments falling due for repayment in second half of FY 2020 including commercial papers of Rs 550 crore.

"However, comfort can be taken from the current liquidity maintained and a demonstrated track record of refinancing debt in the past," it added.