CRISIL Ratings has downgraded Jindal Steel and Power (JSPL) to below investment grade after the firm reported a consolidated net loss of Rs 573 crore for the three months to December.
Crisil has cut the long-term credit rating for Rs 3,212 crore worth of long-term loans by two notches to ‘BB+’ from ‘BBB+’, citing the possibility of further deterioration in the liquidity of the JSPL group. The agency also reduced the rating for R415 crore of short-term loans of JSPL to ‘A4+’ from ‘A3+’ putting both the ratings on “watch with negative implications”.
Based on its discussion with the debenture trustees, Crisil also observed said that while the debenture holders have not exercised their option to ask for accelerated repayment, it added that if the debenture holders choose to exercise the option for accelerated repayment, JSPL’s liquidity position could come under further pressure.“ Crisil will remove the ratings from watch and take a final rating action once it has more clarity on this issue,” added the rating agency.
According to Crisil, JSPL Group’s liquidity will fall significantly as the sale of the stake in the rolling mill and the settlement in Bolivia may take longer than earlier anticipated. Crisil had earlier expected these to be completed before March 2016.
“Delays would adversely impact the group’s debt-servicing ability in the near term and increase the group’s reliance on timely refinancing of debt taken for Angul (Odisha) steel plant. Any delay in the said refinancing beyond Crisil’s expectations of March 2016 could lead to severe pressure on cash flow and will hence remain a key monitorable,” said a rating agency in a note on its website.
Crisil’s decision to keep the ratings on watch is based on its belief that due to a weak operating and financial performance, there will be a breach in covenants for part of the non-convertible debentures issues of JSPL, which can lead to a sharp deterioration in group’s liquidity and credit quality.
It acknowledged that the government’s recent measure of introducing a minimum import price on steel products may not bring immediate respite to the group’s liquidity, while any impact on medium-term profitability will also depend on the extent of improvement in domestic realisation. It noted that the performance of the group’s power business will also remain subdued due to the absence of power purchase agreements and low demand in the merchant market.
Amidst falling sales realisations and higher interest outgo, JSPL has seen mounting losses in the last one year. It reported its fifth consecutive quarterly loss in Q3FY16, taking the total loss during the period to close to Rs 3,600 crore. During the October-December period, steel realisations of JSPL fell by Rs 2,400 per tonne to Rs 34,800 per tonne due to fall in domestic steel prices and operating losses in international business. The company’s earnings before interest tax, depreciation & amortization (EBITDA) in the quarter declined by 65% y-o-y to Rs 550 crore.
