The ratings and research firm reaffirmed the short-term rating of ‘ICRA A1+’ on the Rs 2,500-crore commercial paper programme.
Icra has downgraded the long-term rating assigned to the Rs 18,500 crore fund-based and non-fund based bank facilities of Shapoorji Pallonji and Company (SPCPL) to ‘ICRA AA’ from ‘ICRA AA+’ and has reaffirmed the short-term rating at ‘ICRA A1+’, it said in a statement on
The ratings and research firm reaffirmed the short-term rating of ‘ICRA A1+’ on the Rs 2,500-crore commercial paper programme. “The ratings has been placed on watch with developing implications,”
The long-term rating downgrade takes into account muted sales and continued cost pressure, which has led to weak performance of the group’s real estate portfolio and slower-than-anticipated progress on asset monetisation.
This, along with the funding support provided to group/subsidiary companies (primarily real estate SPVs), has resulted in an increase in SPCPL’s standalone borrowing levels, contrary to ICRA’s expectations of a reduction in the same.
Also, the debt availed of by various SP group real estate entities for which SPCPL has extended debt service reserve account (DSRA) guarantee is exposed to refinancing risks given that projects would take time to generate commensurate cash flows.
SPCPL concluded monetisation of Chennai IT park and solar portfolio in recent past. The proceeds from the Chennai IT park are expected to be deployed towards reducing the debt at the standalone level and the proceeds from solar projects will go towards the equity commitment of infrastructure projects.
Furthermore, the rating continues to remain constrained by presence of sizeable contingent liabilities (financial, and performance guarantees), which stood at Rs 3,693 crore as on March 31, 2018. Of that, Rs 1,927 crore were towards financial guarantees and remaining Rs 1,765 crore towards performance guarantees, the ratings firm observed.
However, Icra takes note of the management’s plans to contract long-term debt on the strength of the projects cash flows for the real estate SPVs and reduce considerably over the medium term the DSRA guarantees extended by SPCPL.
The ratings, it said, derives strength from robust and well diversified order-book position — with strong order inflows in the last two fiscals.
SPCPL had an order book of around Rs 36,000 crore as on September 30, 2018. The order book to operating income ratio stands at 3.7x FY18 revenues, providing decent revenue visibility in the medium term.
The ratings also factor in the pending equity commitments and other financial support to be provided by SPCPL for the group’s various projects, including those in the infrastructure sector.
“Cashflows from operational infrastructure projects will be largely sufficient to meet their own debt/operational obligations,” it noted.
The company has access to around Rs 300 crore of undrawn bank lines, and liquid surplus of around Rs 1,000 crore currently. Further, promoters have infused Rs 650 crore in the form of equity and realisation of inter-group receivables, and a further Rs 450 crore from monetisation of Chennai IT park is expected shortly.
“Based on other monetisations in progress, the company and its promoters are committed to bring in sizeable amount of equity by end of March 2019. Overall, the near-term liquidity profile is expected to remain comfortable given the undrawn lines, liquid surplus and fresh equity infusion from promoters along with good refinancing ability of the group,” it said.