Negative outlook takes into account the slower-than-anticipated progress in terms of SPCPL's deleveraging plans
Ratings firm ICRA downgraded Rs 23,500 crore of fund and non-fund based limits and commercial paper of Shapoorji Pallonji and Company (SPCPL).
Negative outlook takes into account the slower-than-anticipated progress achieved by SPCPL in terms of its deleveraging plans through equity infusion and asset monetisation.
Icra said the long-term rating of non-fund based limits of Rs 15,000 crore is downgraded to A+ from AA- and short term to A1 from A1+. The long-term rating on fund based limits of Rs 6,000 crore downgraded to A+ from AA- and short-term rating downgraded to A1 from A1+. The commercial paper of Rs 2,500 crore was downgraded to A1 from A1+.
The ratings firm observed that the promoters have infused a total of Rs 2,270 crore in SPCPL during first half of FY20, including Rs 1,900 crore from the proceeds of the Sterling & Wilson Solar (SWSL) initial public offering (IPO). However, Icra observed that the net debt levels have not come down because the same has been deployed to meet the funding requirements, especially of the real estate business, to meet both the debt obligations as well as construction finance to complete the ongoing projects.
There has also been a reduction in the reported contingent liabilities (financial guarantees & DSRA support) from Rs 2,942 crore as on March 31, 2019 to Rs 2,412 crore as on September 30, 2019, through a combination of funds from SPCPL as well as project level cashflow linked debt. “The increase in standalone debt has also been on account of elongation in the working capital cycle given the slow realisation of receivables and high inventory levels, especially for EPC projects from Andhra Pradesh government,” the ratings firm observed.
Icra has also taken note of the recent developments in SWSL, wherein its promoters – SPCPL and Khurshed Yazdi Daruvala, requested for revised repayment schedule of the inter-corporate deposits (ICDs) due from their jointly held entities to SWSL. “As part of the commitments made by the promoters during the IPO of SWSL, a portion of the net offer proceeds from the IPO were to be utilised for repayment of these ICDs. While SPCPL is not a borrower for these ICDs, their impending settlement has resulted in an increase in SP group’s overall funding requirements”.
The management expects to fund these liabilities through mobilising funds at the promoter level as well as additional borrowing at the level of Sterling and Wilson Private, any increase in SPCPL’s debt levels to meet SWSL liability would be negative from credit perspective. Icra said it will closely monitor the developments on this front.