MUMBAI, February 12: Icra Ltd has downgraded the long- and medium-term debt instruments of Steel Authority of India Ltd (SAIL). While the non-convertible debenture (NCD) programme of the steel giant has been downgraded to LAA-, the fixed deposit (FD) programme has been downgraded to MAA. The revised ratings indicate high safety.This is the second round of downgradation of the public sector steel major's debt programme by Icra. The Credit Rating Information Services of India Ltd (Crisil) had downgraded SAIL's debt plan twice-first in September 1997 and later in January 1998. With the latest round of downgradation by Icra, both the rating agencies have assigned identical rating to SAIL's long- and medium-term debt plans. Icra, however, has assigned an A1+ rating to the company's commercial paper (CP) programme, indicating highest safety regarding the repayment of interest and principal.
The latest downgradation takes into account the sluggish domestic demand which has kept realisations weak and hascontributed to a significant increase in SAIL's finished goods inventory. SAIL has also not been able to pass on the accumulated cost increases, which has adversely affected the operating margins.
Icra expects the company's profitability to be under considerable pressure in the short run. However, in medium to long run, steel demand factors are positive in view of the expected growth in the economy and capital investment. The modernisation projects of SAIL's major steel plants have also witnessed both time overruns and cost escalations. The rating agency has assigned an LA- rating to the proposed Rs 55-crore NCD programme of Madras Fertilisers Ltd (MFL), indicating adequate safety. Icra has also retained the existing rating of MFL's FD programme at MA-, indicating adequate safety. The demand growth of non-nitrogenous fertilisers has been sluggish over the past and growth in future is likely to depend on the prompt announcement of viable sales prices for non-nitrogenous fertlisers. MFL is dependent onimports for sourcing naphtha and phosphoric acid and is thus exposed to forex fluctuations.
A major portion of the revamp project undertaken by MFL to replace its vintage plant has already been commissioned. The revamp project has seen significant time and cost overruns. The proposed NCD programme is to part-finance the cost overrun in the project, the completion of which is likely to improve the operating margins of MFL by way of reduced naphtha and energy consumption. Icra has also assigned an A1 rating to the Rs 5-crore CP programme of Cosco India Ltd (CIL), indicating highest safety. CIL is engaged in the manufacture and marketing of sports goods such as moulded/stitched balls, tennis balls and butyl bladders. CIL is a dominant player in the domestic market which is reserved for the small-scale sector.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
