Fitch Ratings today downgraded the long-term issuer default ratings on paper maker Ballarpur Industries Ltd (BILT) and its subsidiary Bilt Paper BV to a more speculative grade while maintaining the grading on Rating Watch Negative (RWN). Citing worsening liquidity situation and curbing of operations of the company due to inadequate working capital, the agency said it has downgraded the ratings on BILT and its arm “to CCC, from B-“.
Fitch had downgraded BILT and placed it on RWN on July 29, 2016, based on its deteriorating credit profile and significant refinancing risks for upcoming debt maturities. BILT said in July 2016 that it was in talks to sell two of its Indian units, which would improve liquidity, but the company has not made material progress on the transaction, Fitch said in a statement.
“BILT’s liquidity has worsened since our previous downgrade, and operations were curbed due to inadequate working capital. In addition, without an asset sale, there is greater risk it will not be able to address debt maturities, resulting in the downgrade to ‘CCC’,” it said. Fitch, however, said BILT is aggressively pursuing several options to secure funding and monetise assets to meet repayment obligations.
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“The RWN reflects the risk that the company would have exhausted almost all possible remedies to avoid a debt default or restructuring if the current negotiations are delayed or fail,” it added. The ratings agency further said: “If BILT’s latest efforts do not conclude favourably within six months, Fitch will take further negative rating action.”
Highlighting BILT’s worsening liquidity position, Fitch said the company had reported cash of just Rs 3.9 crore at end-September 2016, and incurred an EBITDA loss of Rs 6.2 crore in the first half of 2016-17. This compared with cash of Rs 250 crore at end-March 2016 and EBITDA of Rs 710 crore in FY16. At end-March 2016, it also had Rs 2,060 crore of short-term debt and Rs 920 crore of long-term debt maturing in FY17, it added.
The company is in advanced negotiations with financial institutions and investors for debt and equity funding to address its upcoming debt repayments. However, Fitch does not expect such additional financing alone to be adequate to address its debt maturities of over Rs 2,500 crore over the next three years, it said.