The downgrade and negative outlook reflect the significantly elevated refinancing risks for Wockhardt in second half of FY20 due to its weak liquidity position for servicing its upcoming debt maturities over the same period.
India Rating and Research on Wednesday downgraded Wockhardt’s long-term issuer rating to ‘IND BB+’ from ‘IND BBB-’ and the outlook is negative. Rating agency also downgraded short-term bank facilities/ commercial paper to “IND A4+” from “IND A3”. The stock of Wockhardt on Thursday ended the day at `245.10 down by 2.89% or Rs 7.30 on BSE. Data from Bloomberg showed that total consolidated debt of Wockhardt stood at Rs 2,453.18 crore as on March 2019.
The downgrade and negative outlook reflect the significantly elevated refinancing risks for Wockhardt in second half of FY20 due to its weak liquidity position for servicing its upcoming debt maturities over the same period. “In the absence of a meaningful recovery in operating performance, the company has witnessed continuous depletion in cash balances for servicing debt obligations. Furthermore, the agency expects weak free cash flow generation in FY20,” said India Ratings report.
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In FY19, the company’s promoters had infused Rs 2.5 billion in the form of redeemable preference shares to refinance Wockhardt’s outstanding preference debt. The management is evaluating refinancing options for the large upcoming debt repayments through term loans and other capital infusion options in India and abroad. Also, additional financial support from the promoters through the issuance of redeemable preference shares of Rs 2.5 billion as per a board resolution in December 2018 and proposed debt issuances may provide liquidity back-up till 2HFY20.
“Based on a discussion with the management, the agency expects the shortfalls in debt servicing, if any, to be met by the promoters through fund infusions. Hence, a meaningful operational turnaround in FY20 and/or continued promoter support is a key rating sensitive factor, said the rating agency in its press release.
The ratings reflect Wockhardt’s consolidated weak operational performance and credit profile in FY19-1QFY20. In FY19, Wockhardt’s revenue grew by 5.6% to Rs 41.58 billion, led by increased exports to the US and semi-regulated markets. Despite the modest improvement in operating profitability, the consolidated credit metrics remained weak because of high debt levels. The agency expects Wockhardt’s credit profile to remain weak in FY20.