/raid1/www/Hosts/bankrupt/TCRAP_Public/200109.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
A S I A P A C I F I C
Thursday, January 9, 2020, Vol. 23, No. 7
Headlines
A U S T R A L I A
CONVEYOR & BELTING: Second Creditors' Meeting Set for Jan. 17
HARRIS SCARFE: Set to Shut 21 Stores; Hundreds of Jobs Axed
WRIGHT'S TRANSPORT: Second Creditors' Meeting Set for Jan. 15
C H I N A
CHINA FORTUNE: Moody's Assigns Ba3 CFR, Outlook Stable
CHINA ZHENGTONG: Moody's Assigns B2 CFR, Outlook Stable
CIFI HOLDINGS: Fitch Assigns BB to Proposed USD Sr. Notes
CIFI HOLDINGS: S&P Assigns 'BB-' Rating on USD Unsec. Notes
GOLDEN WHEEL: Moody's Rates Proposed USD Sr. Unsec. Bond 'B2'
LOGAN PROPERTY: Fitch Rates Proposed USD Sr. Notes 'BB'
RADIANCE GROUP: Fitch Rates New USD Sr. Unsec. Notes 'B'
SUNAC CHINA: Fitch Assigns BB Rating to Proposed USD Sr. Notes
SUNAC CHINA: Moody's Assigns B1 Rating to New USD Unsec. Notes
SUNAC CHINA: S&P Assigns 'B+' Rating on New USD Unsec. Notes
YUZHOU PROPERTIES: Moody's Rates New Sr. Unsec. Notes 'B1'
ZHENRO PROPERTIES: Fitch Assigns B+ Rating to New USD Sr. Notes
ZHENRO PROPERTIES: Moody's Rates Proposed Sr. Unsec. Notes B2
I N D I A
A K LUMBERS: Ind-Ra Migrates BB- Issuer Rating to Non-Cooperating
AGARWAL COAL: CARE Keeps B+ on INR6cr Loans in Not Cooperating
AIR INDIA: Ministerial Panel Approves Fresh Purchase Bids
ALLIED INDIA: CRISIL Reaffirms B- Rating on INR10.5cr Cash Loan
ALTICO CAPITAL: Kotak Halts Bid for Shadow Bank
CHAMPION OM DEV: CRISIL Moves B+ on INR13.7cr Credit to Stable
CHINAR FORGE: CRISIL Lowers Rating on INR24cr Cash Loan to 'D'
DHARAMRAJ CONTRACTS: CRISIL Cuts Rating on INR34cr Loan to D
GEM ROUGH: CARE Lowers Rating on INR5cr LT Loan to B+
IPSUM MEDICARE: CRISIL Lowers Rating on INR8.95cr Loan to 'D'
JINDAL WOOD: Ind-Ra Migrates BB- Issuer Rating to Non-Cooperating
KMC PLASTOCHEM: CRISIL Lowers Rating on INR4cr Cash Loan to D
LALITPUR POWER: Fitch Assigns BB+(EXP) Rating to New $750MM Notes
LALITPUR POWER: Moody's Gives (P)Ba3 Rating to New Sr. Sec. Notes
MANAPPURAM FINANCE: Fitch Gives BB-(EXP) Rating to USD Sec. Notes
PATEL JIVA: CARE Migrates B+ on INR6.8cr Debt From Not Cooperating
PRAKASH POLYESTER: CARE Reaffirms B+ Rating on INR7.89cr Loan
PROTEUS ENTERPRISE: CRISIL Moves B+ Rating to Not Cooperating
PUNJAB METAL: Ind-Ra Migrates BB- Issuer Rating to Non-Cooperating
RAMKRUPA GINNING: CARE Reaffirms B+ Rating on INR20cr LT Loan
RELIGARE FINVEST: Lenders Agree to 49% Haircut on Debt
SARANYA SPINNING: Ind-Ra Lowers LongTerm Issuer Rating to 'BB+'
SENCO GOLD: CRISIL Moves FB+ on INR99 Deposits to Not Cooperating
SHAGUN REALTY: CRISIL Withdraws B+ Rating on INR20cr LT Loan
SHITAL FIBERS: CRISIL Lowers Rating on INR80cr Cash Loan to 'D'
SHRIRAM TRANSPORT: Fitch Gives BB+(EXP) Rating to New USD Sec Notes
SHRIRAM TRANSPORT: S&P Rates New USD Sr. Secured Notes 'BB+'
SHUBHAM POLYSPIN: CRISIL Moves B+ Rating From Not Cooperating
SUNGRACIA TILES: CRISIL Lowers Rating on INR15cr Cash Loan to D
VILTANS POLYPLAST: CRISIL Lowers Rating on INR4.5cr Loan to B-
VINPACK INDIA: CRISIL Lowers Rating on INR17cr Loan to B+
I N D O N E S I A
BPJS KESEHATAN: No More Funds Available to Cover Deficit
S I N G A P O R E
KOON HOLDINGS: To Hold Creditors' Scheme Meetings on Feb. 25
T H A I L A N D
THAILAND: Cabinet Approves $8.6BB of Loan to Help Smaller Firms
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A U S T R A L I A
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CONVEYOR & BELTING: Second Creditors' Meeting Set for Jan. 17
-------------------------------------------------------------
A second meeting of creditors in the proceedings of Conveyor &
Belting Services Pty Ltd has been set for Jan. 17, 2020, at 10:30
a.m. at the offices of Morton's Solvency Accountants, at Level
11/410 Queen Street, in Brisbane, Queensland.
The purpose of the meeting is (1) to receive the report by the
Administrator about the business, property, affairs and financial
circumstances of the Company; and (2) for the creditors of the
Company to resolve whether the Company will execute a deed of
company arrangement, the administration should end, or the Company
be wound up.
Creditors wishing to attend are advised proofs and proxies should
be submitted to the Administrator by Jan. 16, 2020, at 4:00 p.m.
Leon Lee of Morton's Solvency Accountants were appointed as
administrators of Conveyor & Belting Services on Dec. 3, 2019.
HARRIS SCARFE: Set to Shut 21 Stores; Hundreds of Jobs Axed
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Matthew Elmas at SmartCompany reports that collapsed department
store Harris Scarfe will shutter 21 stores across Australia over
the next four weeks as receivers try to steady the ship for a
possible sale.
Deloitte Restructuring Services partner Vaughan Strawbridge
informed 440 workers their positions with the business, which fell
into receivership last December, will be affected by the closures
on Jan. 6, SmartCompany relates.
"This has been a difficult decision, but one necessary to position
the Harris Scarfe business for a successful sale and continued
operation," the report quotes Mr. Strawbridge as saying in a
statement.
"All efforts are being made to redeploy affected staff around the
rest of the store network, and all staff that leave the business
will receive all wages and entitlements in full on the closure of
individual stores."
According to SmartCompany, the administrators confirmed 44 of
Harris Scarfe's stores will continue to trade, with 1,380 of the
more than 1,800 staff that worked at the company prior to its
collapse remaining.
"Our review of the store network included a range of factors,
including past and likely future profitability," Mr. Strawbridge,
as cited by SmartCompany, said.
"Going forward, we certainly remain focused on running the broader
store network, and selling the business as the best outcome for
remaining employees and suppliers."
The stores that will close over the next four weeks include two
stores in Western Australia, six in Queensland, eight in New South
Wales, three in Victoria and one in both South Australia and the
Australian Capital Territory, the report discloses.
SmartCompany notes that plans to close stores were developed over
the last month after receivers and administrators from BDO had a
chance to run the ruler over the business, which had been in the
hands of Australian-based private equity firm Allegro Funds since
November.
Gift cards and lay-buy deposits continue to be honoured in full,
adds SmartCompany.
As reported in the Troubled Company Reporter-Asia Pacific on Dec.
12, 2019, The Sydney Morning Herald said department store chain
Harris Scarfe has become the latest casualty of the flagging retail
sector after being placed into receivership. The AUD380 million
chain has 66 stores across the country from Top Ryde in Sydney's
northern suburbs, Westfield Chermside and Carindale in Brisbane,
Canberra, Wagga Wagga down to Geelong in Victoria, Adelaide and
Hobart.
Harris Scarfe employs more than 1,800 staff and said the
appointment of DRS partners Vaughan Strawbridge, Kathryn Evans and
Tim Norman was made by an unnamed secured lender to the group.
WRIGHT'S TRANSPORT: Second Creditors' Meeting Set for Jan. 15
-------------------------------------------------------------
A second meeting of creditors in the proceedings of Wright's
Transport Pty Ltd has been set for Jan. 15, 2020, at 11:00 a.m. at
Level 31, at 1 Eagle Street, in Brisbane, Queensland.
The purpose of the meeting is (1) to receive the report by the
Administrator about the business, property, affairs and financial
circumstances of the Company; and (2) for the creditors of the
Company to resolve whether the Company will execute a deed of
company arrangement, the administration should end, or the Company
be wound up.
Creditors wishing to attend are advised proofs and proxies should
be submitted to the Administrator by Jan. 14, 2020, at 4:00 p.m.
Jason Tang & Ozem Kassem of Cor Cordis were appointed as
administrators of Wright's Transport on Nov. 29, 2019.
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C H I N A
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CHINA FORTUNE: Moody's Assigns Ba3 CFR, Outlook Stable
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Moody's Investors Service assigned a first-time Ba3 corporate
family rating to China Fortune Land Development Co., Ltd.
At the same time, Moody's has assigned a Ba3 senior unsecured
rating to the proposed USD notes to be issued by CFLD (Cayman)
Investment Ltd., an indirectly wholly owned subsidiary of CFLD. The
notes will be unconditionally and irrevocably guaranteed by CFLD.
The ratings outlook is stable.
The proceeds from the note issuance will be used by CFLD for debt
refinancing.
RATINGS RATIONALE
"CFLD's Ba3 CFR reflects its standalone credit strength and a
one-notch rating uplift, reflecting our assessment that Ping An
Life Insurance Company of China, Ltd., CFLD's second-largest
shareholder with a 25.16% stake, could provide extraordinary
support to CFLD in times of need," says Josephine Ho, a Moody's
Vice President and Senior Analyst.
Ping An Life, which is the second-largest life insurer in China by
original premium income, is 99.5% owned by Ping An Group and the
life insurance arm of the group.
The one-notch uplift reflects Moody's assessment that Ping An Life
could support CFLD in times of financial stress based on (1) the
track record of financial support from Ping An Life to CFLD since
its investment in August 2018, (2) its active role in CFLD's
operational and financial management, and (3) CFLD's established
integrated industrial park business, which is complimentary to Ping
An Group's real estate businesses.
However, the uplift is limited to one notch, given that Ping An
Life is still the second-largest shareholder after the founding
shareholder, Mr. Wen-Xue Wang.
Under the ownership of Ping An Life, Moody's expects CFLD will
enhance its management capability, business planning, financial
management on debt and operating cash flow, and access to bank
financing and the capital markets.
"CFLD's standalone credit strength reflects its strength in
executing a business model of industrial park-cum-residential
property development," says Ho, who is also Moody's Lead Analyst
for CFLD.
CFLD provides industrial park planning and development services to
local governments through public-private partnerships. The
development services include primary land development,
infrastructure construction and business investment referrals. The
company also manages industrial parks.
At June 30, 2019, CFLD had 78 industrial parks in operation, under
planning or construction across municipals surrounding tier 1 and
strong tier 2 cities in China. The company is gradually expanding
to central China and the Yangtze River Delta, areas beyond its home
base in the Beijing-Tianjin-Hebei region.
CFLD's residential property development is primarily focused on
mass-market projects within or surrounding the industrial parks it
has developed.
Such a business model offers the company low land costs and
non-residential property development profits, which help to reduce
somewhat the revenue volatility from its residential property
development business, with the latter offering presales cash
inflow.
However, CFLD's standalone credit strength is constrained by the
company's (1) small land bank that requires annual spending, and
(2) moderately high level of debt leverage.
The company's high debt levels are contributed by its (1) fast
growth business plan, (2) the long cash conversion cycle of its
industrial park business, and (3) the slow cash collections from
its residential property business, due to tight regulatory controls
in the Beijing-Tianjin-Hebei region.
Moody's expects that CFLD will gradually improve its debt leverage
over the next two years. The company's debt leverage — as
measured by revenue/adjusted debt — will likely register around
55% in 2020 and 63% in 2021 compared with 56% in 2018. During the
same two-year period, the company's interest coverage — as
measured by adjusted EBIT/interest — should stay at 3.0x-3.5x,
which would support its standalone credit profile.
The forecast improvement in debt leverage is based on Moody's
expectation that CFLD's revenue will grow around 30% over the next
12-18 months, supported by 10%-20% growth in CFLD's contracted
sales over the past three years, and an around 30% growth in
industrial development services.
Moody's also expects an improvement in CFLD's cash collection for
its residential property sales over the next 12-18 months, because
CFLD has adopted a more stringent financial policy and discipline
after Ping An Life became its second-largest shareholder. In
addition, CFLD's expansion beyond the Beijing-Tianjin-Hebei region
reduces the company's exposure to regulatory risks and improves its
cash collection.
With regards to governance risk, Moody's has considered the
ownership concentration by its controlling shareholder, Mr. Wen-Xue
Wang, who collectively with persons acting in concert, held a
37.17% stake in the company at the end of November 2019, with 62%
of this stake pledged as of the same date. This risk is partly
mitigated by the presence of Ping An Life, which owns a 25.16%
stake, and two seats on the board of directors out of a total of
nine; providing corporate governance oversight. Ping An Life will
also help to improve the operation and financial management of the
company.
CFLD's liquidity is adequate, with reported cash/short-term debt of
2.42x--1.76x during 2016--2018. The company reported a cash balance
of RMB55 billion at June 30, 2019. Moody's expects the company's
cash holdings, together with its contracted sales proceeds after
deducting basic operating cash flow items, will be adequate to meet
its maturing debt over the next 12 months.
CFLD Cayman's senior unsecured rating is unaffected by
subordination risk from claims at the operating companies, because
Moody's expects financial support from Ping An Life to flow through
the holding company of CFLD rather than directly to the main
operating companies, thereby mitigating any differences in expected
loss that could result from structural subordination.
The stable ratings outlook reflects Moody's expectation that (1)
CFLD will gradually improve its debt leverage and cash collection,
while growing its contracted sales and industrial development
service revenues, and (2) Ping An Life will remain an important
shareholder and continue to provide operational and financial
oversight and support.
CFLD's ratings could come under upgrade pressure if the company (1)
increases in scale through growing its residential property and
industrial park businesses, (2) maintains good liquidity, and (3)
improves its credit metrics, such that revenue/adjusted debt
exceeds 75%-80% and EBIT/interest exceeds 3.5x, both on a
sustainable basis.
On the other hand, CFLD's ratings could be under downgrade pressure
if the company (1) shows a decline in contracted sales and/or
revenues from its industrial park business, (2) cannot improve its
debt leverage, such that revenue/adjusted debt stays below 50% by
the end of 2020 and 60% by the end of 2021, or (3) shows a
weakening in its liquidity position.
Any material reduction in ownership by Ping An Life or signs of
weakening support from Ping An Life would also trigger downgrade
pressure on CFLD's ratings.
The principal methodology used in these ratings was Homebuilding
And Property Development Industry published in January 2018.
China Fortune Land Development Co., Ltd. was established in 1998
and listed on the Shanghai Stock Exchange in 2011. The company
engages in residential property development and the investment and
operation of integrated industrial parks. The company's industrial
park businesses include primary land development, infrastructure
development and construction, industry development services, and
property management and public services.
CHINA ZHENGTONG: Moody's Assigns B2 CFR, Outlook Stable
-------------------------------------------------------
Moody's Investors Service assigned a B2 corporate family rating to
China ZhengTong Auto Services Holdings Ltd.
At the same time, Moody's has assigned a B2 senior unsecured rating
to the proposed USD notes to be issued by ZhengTong.
The outlook is stable.
The bond rating reflects Moody's expectation that ZhengTong will
complete the bond issuance upon satisfactory terms and conditions,
including proper registrations with the National Development and
Reform Commission in China (A1 stable).
ZhengTong will use the bonds' proceeds to refinance its existing
debt and for general corporate purposes.
RATINGS RATIONALE
"ZhengTong's B2 rating is supported by the company's diversified
brand portfolio and leading position in China's fast-growing luxury
car dealership market," says Roy Zhang, a Moody's Assistant Vice
President and Analyst.
ZhengTong recorded a total revenue of RMB37.5 billion in 2018 with
112,574 units of new car sales, making it one of the largest auto
dealers in China. Over the years, the company has expanded its
network to encompass 141 stores in 41 cities across 17 provinces
and municipalities in China by the end of June 2019. Its large
operating scale, supported by deep geographical diversification,
helps to improve its efficiency and business resilience.
With a strong brand portfolio mainly focused on the luxury car
market, ZhengTong benefits from a structurally growing luxury car
segment characterized by low penetration, rising disposal income
and increasing consumption. In addition, the company is able to
generate higher margins than its peers in other car segments and
reduce operating volatility associated with concentration in a
single brand, given its diversified brand portfolio.
ZhengTong's after-sales services generated gross profits of RMB2.0
billion in 2018, accounting for roughly 45% of total gross profits.
This segment generates recurring revenue with high margins, helping
it mitigate industry downturns and improve business stability.
ZhengTong's financial services subsidiary, Shanghai Dongzheng
Automotive Finance Co., Ltd (SDAFC), which is regulated by The
People's Bank of China (PBOC), has separately listed on the Hong
Kong Stock Exchange in April 2019. ZhengTong remains SDAFC's
largest shareholder with a 71% stake at the end of June 2019. The
listing has improved SDAFC's financial transparency and
flexibility, as well as its financial independence from ZhengTong.
Moody's has analyzed ZhengTong on a consolidated basis with SDAFC,
given its high ownership, tight operational links and shared
reputational risks.
However, the rating is constrained by ZhengTong's high funding
needs and weak liquidity. Its leverage, as measured by total
adjusted debt to EBITDA, increased to 6.5x at end June 2019 from
5.9x at the end of 2018, largely due to the expansion of auto
finance business, a temporarily weak operating environment and
increasing funding needs. The leverage is based on a consolidation
of SDAFC's auto finance loan book as well, which represented 35.4%
of ZhengTong's total consolidated loans and borrowings at end of
June 2019. The increased consolidated leverage reflects the
capital-intensive nature of auto finance business.
Moody's expects ZhengTong's debt to EBITDA ratio to stay around
6.5x over the next 12-18 months, as the company continues to expand
its operating scale and increase borrowing through SDAFC.
Given its weak liquidity, ZhengTong has had to rely heavily on
short-term financing, but it has typically been able to rollover
this short-term debt. As of the end of June 2019, the company has
reported unrestricted cash of RMB4.5 billion and restricted cash of
RMB2.1 billion, with RMB18.7 billion of reported debt due in the
next 12 months.
Moody's expects that the company will be able to continue to
rollover its debt, given its profitable operations, strong market
position and inventory of branded cars. The company has also
demonstrated a track record of accessing diversified funding
channels, including bank loans, commercial paper, syndicated loans,
auto OEM financing and funding through the inter-bank market. In
addition, its strategic relationships with auto makers and highly
liquid working capital provide strong buffers against its liquidity
needs. Moreover, it can access public equity funding via ZhengTong
and SDAFC's listings in Hong Kong if needed.
ZhengTong's senior unsecured bond rating for the proposed USD notes
is unaffected by subordination claims at the operating company
level, because such claims are not material, based on Moody's
expectation that the majority of the claims will remain at the
holding company level.
The rating also takes into account the following environmental,
social and governance (ESG) considerations.
The company benefits from the social trend of increasing car
ownership in China, especially in the luxury segment. This trend is
supported by China's improving infrastructure, rising disposable
income and urbanization rate.
The company faces regulatory risks related to vehicle ownership
controls, vehicle fuel economy and emission standards, as well as
risks stemming from its financial services and used-vehicle sales.
Any further tightening of related regulations could hamper sales.
As for governance, the company has been a listed and regulated
entity since 2010. However, it has concentrated ownership with a
key shareholder owning 56.4% as of June 30, 2019. In addition, its
independent directors are in the minority in its board
composition.
In terms of financial policy, the company relies on debt funded
growth, which is partially mitigated by its improving non-debt
funding channel through SDAFC listing.
The stable ratings outlook takes into account Moody's expectation
that ZhengTong will maintain its leading market position, stable
level of debt leverage and can refinance its short-term debt.
Upward ratings pressure could emerge if ZhengTong (1) maintains its
business profile and access to diversified long-term funding
sources, (2) strengthens its liquidity profile, (3) improves its
debt leverage, and (4) grows the revenue and gross profit
contribution of its auto maintenance business.
Specifically, credit metrics indicative of upward ratings pressure
include adjusted debt/EBITDA trending towards 5.5x, and interest
coverage, as measured by EBITDA/interest, exceeding 3.0x, both on a
sustained basis.
On the other hand, downward ratings pressure could emerge if
ZhengTong's (1) business profile weakens, (2) revenue and/or
margins decline due to deteriorating market conditions or the
termination of contracts with vehicle suppliers, (3) liquidity
position or funding access weakens, or (4) interest coverage — as
measured by EBITDA/interest — falls below 2.0x or leverage rises
above 7.0x, on a sustained basis.
The last rating action was on August 4, 2017 when ZhengTong's B1
corporate family rating with a stable outlook was withdrawn due to
business reasons.
The principal methodology used in these ratings was Retail Industry
published in May 2018.
Incorporated in 1999, China ZhengTong Auto Services Holdings Ltd.
is one of the leading players in the luxury car dealership market
in China. Headquartered in Beijing, its operation encompassed 141
dealerships across 17 provinces by end June 2019. The company
mainly focuses on luxury and ultra-luxury brands. ZhengTong's
shares listed on the Hong Kong Stock Exchange in December 2010. Mr.
Wang and his family owned 56.4% of the company at end June 2019.
CIFI HOLDINGS: Fitch Assigns BB to Proposed USD Sr. Notes
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Fitch Ratings assigned 'BB' rating to China-based property
developer CIFI Holdings Co. Ltd.'s (BB/Stable) proposed US dollar
senior notes. The notes are rated at the same level as CIFI's
senior unsecured rating, as they represent its direct,
unconditional, unsecured and unsubordinated obligations.
CIFI's Issuer Default Rating reflects its strengthening business
profile as it continued to expand nationwide without materially
weakening its financial profile. CIFI's asset-light non-property
development (non-DP) revenue generated non-DP EBITDA interest
coverage of 0.3x in 1H19 and Fitch believes that the non-DP segment
is significant and sufficiently stable to provide some support to
the rating, compared with peers rated at 'BB-' that lack this
factor.
KEY RATING DRIVERS
Higher Leverage, Land Replenishment Pressure: Fitch expects CIFI's
land acquisitions to exceed its 2019 budget, meaning leverage will
stay above 45% in 2019-2020. Leverage rose in 2018 on continued
high cash outflow for land acquisitions to support expansion. CIFI
spent 68% of total cash receipts from sales proceeds and its non-DP
segment, or CNY46 billion, on land acquisitions in 2018 (2017:
85%). It had attributable land bank of 23 million square metres (sq
m) at end-June 2019 and Fitch estimates its available-for-sale
portion at 20 million sq m, equivalent to less than three years of
sales, given CIFI's aim to increase sales by 25% in 2019.
Management budgeted around 55% of total cash receipts, or CNY52
billion, for land acquisitions in 2019. However, Fitch thinks that
a company of CIFI's size would usually have land bank enough for
three years of sales to be resilient to business cycles.
Strong Sales: Fitch believes CIFI is on track to meet its target of
CNY190 billion in total sales from CNY350 billion of saleable
resources in 2019. Total 1H19 sales increased by 34%, with the
average selling price rising by 14% to CNY17,382/sq m on higher
contracted average selling prices in third-tier cities. CIFI aims
to increase attributable interest to 55% in 2019 and 60% in 2020 to
raise profit attributable to shareholders.
Geographical Diversification, Regional Advantage: CIFI's resources
are diversified across city tiers and cover most of China's key
cities, giving it greater operational flexibility in managing its
sales pace to achieve sales targets. CIFI has a historical
advantage in the Yangtze River Delta, with more than 40% of its
land bank in the region in 2015-2018. CIFI has reduced its reliance
on the region, which accounted for 48% of total sales in 2018,
compared with above 60% in 2015-2017.
CIFI continues to increase its presence in Tier 3 cities, which
made up 27% of total sales in 1H19, against 22% in 2018. This saw a
drop in average attributable new land cost to around CNY4,967/sq m
in 7M19. CIFI intends to continue its focus on second- and
third-tier cities for residential projects, as they have looser
policies and larger land supply. The company will also target
commercial projects in Tier 1 cities.
Margin Maintained: Fitch believes CIFI's diversified project
portfolio across cities of different tiers allows it to maintain
its fast-churn strategy without sacrificing overall project
margins. CIFI's EBITDA margin, after adding back capitalised
interest, increased to 25% in 1H19, from 22% in 2018. The margin
would have been higher if adjusted for acquisition revaluations,
according to the company. Acquisition revaluations are likely to
continue, as CIFI has a significant number of joint ventures (JV)
and associates.
Non-DP Segment Supports Interest Cover: Fitch expects non-DP EBITDA
interest coverage to reach 0.40x in 2020 (2017-2018: 0.35x) on
expanded investment-property operations, which should generate
rental income and continued sales growth through JVs. Non-DP
revenue rose to CNY2.0 billion in 1H19, a 92% increase that
comprised JV project-management fees, rental revenue from
investment properties and construction services. Fitch believes
CIFI's large JV operations and reputable property products have
created a stable fee-income stream, although fees are not strictly
recurring as most are project-based.
DERIVATION SUMMARY
CIFI's attributable sales reached CNY76 billion in 2018, similar to
Sino-Ocean Group Holding Limited's (BBB-/Stable, Standalone Credit
Profile: bb+) CNY68 billion, but higher than the CNY40 billion-50
billion of most 'BB-' peers, such as KWG Group Holdings Limited
(BB-/Stable), Times China Holdings Limited (BB-/Stable) and Yuzhou
Properties Company Limited (BB-/Stable).
Sino-Ocean Group continues to focus on Tier 1 and affluent Tier 2
cities, while CIFI has increased its focus on Tier 2 and 3 cities.
CIFI's leverage of around 48% at end-2018 was higher than
Sino-Ocean Group's 40%. Sino-Ocean Group's recurring EBITDA
interest coverage from quality investment properties was at 0.4x,
while CIFI had non-recurring non-DP EBITDA interest coverage of
0.35x at end-2018.
CIFI's leverage is higher than that of KWG, Times China and Yuzhou,
but CIFI has a stronger business profile, with better geographical
diversification and a nationwide presence. CIFI also generates
large non-DP income to provide additional support to service
interest, while the others have minimal non-DP income.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Attributable contracted sales of CNY100 billion in 2019 and
CNY120 billion in 2020.
- Attributable land purchases and construction cash costs at
around 60% and 25% of contracted sales proceeds in 2019-2020,
respectively.
- Property development gross profit margin, excluding capitalised
interest and remeasurement gains, at 30%-35% in 2019-2020.
- Non-DP revenue to increase to CNY4.8 billion in 2019 and CNY6.0
billion in 2020.
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Leverage, measured by net debt/adjusted inventory, including
proportionate consolidation of JVs, sustained below 40%
- Maintaining high cash flow turnover despite the JV business
model and consolidated contracted sales/debt at over 1.2x
(2018: 1.0x)
- Land bank sufficient for three years of sales
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Decrease in contracted sales for a sustained period
- Net debt/adjusted inventory, including proportionate
consolidation of JVs, above 50% for a sustained period
- EBITDA margin, not adjusting for the effect of acquisition
revaluation, below 25% for a sustained period
- Non-DP EBITDA/cash interest paid below 0.3x for a sustained
period
LIQUIDITY
Ample Liquidity, Low Funding Costs: CIFI had unrestricted cash of
CNY54 billion at end-June 2019, enough to cover short-term debt of
CNY17 billion. Its average funding costs remained stable at 5.8% in
2018 (2017: 5.2%) and should stay low due to its diversified
onshore and offshore funding channels and active management of its
capital structure.
CIFI HOLDINGS: S&P Assigns 'BB-' Rating on USD Unsec. Notes
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S&P Global Ratings assigned its 'BB-' long-term issue rating to the
U.S.-dollar-denominated senior unsecured notes that CIFI Holdings
(Group) Co. Ltd. proposes to issue. The China-based property
developer intends to use the proceeds to refinance its existing
debt. The issue rating is subject to our review of the final
issuance documentation.
S&P rates the notes one notch below the issuer credit rating on
CIFI (BB/Stable/--) to reflect subordination risk. As on June 30,
2019, the company's capital structure consisted of Chinese renminbi
(RMB) 42.9 billion of secured debt and RMB25.3 billion of
subsidiary-level unsecured debt and guarantees. Therefore, priority
debt amounted to RMB68.2 billion, or 62% of the total debt. This
compares with our 50% threshold for notching down the issue rating
from the issuer credit rating.
CIFI's total contracted sales grew 32% in 2019 to RMB200.6
billion.
S&P said, "The stable outlook on CIFI reflects our expectation that
the company will continue to expand its scale and control its
leverage. We expect CIFI's see-through debt-to-EBITDA ratio (after
proportionally consolidating joint ventures) to stay at
5.0x-5.5x."
GOLDEN WHEEL: Moody's Rates Proposed USD Sr. Unsec. Bond 'B2'
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Moody's Investors Service assigned a B2 senior unsecured rating to
the proposed USD bond to be issued by Golden Wheel Tiandi Holdings
Company Limited (B2 stable).
The bond proceeds will be used by Golden Wheel mainly to refinance
its existing debt.
RATINGS RATIONALE
"The proposed bond issuance will lengthen Golden Wheel's debt
maturity profile and will not have a material impact on its credit
metrics," says Cedric Lai, a Moody's Vice President and Senior
Analyst.
Moody's points out that Golden Wheel's B2 corporate family rating
reflects its (1) good track record in developing integrated
commercial and residential property projects in Nanjing; (2) stable
recurring income from investment properties; and (3) track record
of prudent financial management; with the company cautiously
expanding its operations.
On the other hand, Golden Wheel's credit profile is constrained by
its small operating scale, weak liquidity and volatile credit
metrics because of its small operating scale and geographic
concentration.
Moody's expects that Golden Wheel's adjusted EBIT/interest and
revenue/adjusted debt will improve to around 1.8x and 25%-35%
respectively over the next 12-18 months from 1.6x and 17% for the
12 months ended June 30, 2019. These ratios are in line with its B2
ratings, given the company's stable recurring income.
Golden Wheel's liquidity position is weak. Moody's expects that the
company's cash holdings and operating cash flow will be
insufficient to cover its short-term debt and committed land
payments over the next 12 months.
In terms of environmental, social and governance factors, Moody's
considers the company's concentrated ownership by the Wong family,
who held a 39.16% stake in the company at July 30, 2019. Moody's
also considers the company's established internal governance for
the disclosure of material related-party transactions, as required
by the relevant codes for companies listed on the Hong Kong Stock
Exchange.
The stable ratings outlook reflects Moody's expectation that the
company will refinance its maturing debt , adopt a disciplined
approach to expansion, and maintain a stable recurring income
stream.
Upward ratings pressure could emerge, if Golden Wheel: (1) expands
its scale through stable revenue growth, and maintains a stronger
and less volatile financial profile; or (2) maintains solid
liquidity.
Credit metrics that could trigger an upgrade include: (1) net
rental income that covers 1.0x of gross interest expenses; (2) a
revenue to debt ratio above 60%-70%; and (3) a cash to short-term
debt ratio above 1.3x on a sustained basis.
Moody's could downgrade the ratings if Golden Wheel: (1)
experiences a significant decline in sales or rental income; (2)
materially increases its debt-funded investment projects; or (3)
fails to maintain adequate liquidity.
Credit metrics that could trigger a ratings downgrade include: (1)
a net rental income to gross interest ratio below 0.3x; (2) an
adjusted EBIT to gross interest ratio below 1.5x on a sustained
basis; or (3) a cash to short-term debt ratio below 1.0x.
The principal methodology used in this rating was Homebuilding And
Property Development Industry published in January 2018.
LOGAN PROPERTY: Fitch Rates Proposed USD Sr. Notes 'BB'
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Fitch Ratings assigned a 'BB' rating to China-based property
developer Logan Property Holdings Company Limited's (BB/Stable)
proposed US dollar senior notes. The notes are rated at the same
level as Logan's senior unsecured rating, as they represent its
direct, unconditional, unsecured and unsubordinated obligations.
Logan's Issuer Default Rating reflects improvement in its financial
profile, with Fitch expecting the company's leverage to be below
40% in the next 12-18 months, and remain at this lower level
because the company has sufficient land bank to support its growth.
Logan has shown financial discipline during its business expansion,
which was evident in the decline in leverage, and maintained high
profitability with EBITDA margin at above 30%.
KEY RATING DRIVERS
Reduced Leverage: Logan's leverage, measured by net debt/adjusted
inventory that proportionately consolidates joint ventures (JVs)
and associates, fell to 36% by end-1H19 from 41% at end-2018 and
48% at end-2017. The company spent CNY21.3 billion on replenishing
its land bank in 1H19, or a steady pace of 47% of its contracted
sales during the period (2018: 50%, 2017: 58%).
By end-June 2019, the company had a total land reserve of 35.9
million square metres (sq m), which was sufficient for development
in the next five years. Fitch expects the company to spend 45%-50%
of its consolidated contracted sales on land replenishment in
2019-2020 and to maintain a land bank sufficient for four to five
years of development.
Sustained High Margins: Logan's EBITDA margin, excluding
capitalised interest from cost of sales, stayed high at 34% in 1H19
(2018: 32%, 2017: 33%). The sustained high profitability
contributes to its deleveraging. Fitch expects the company's EBITDA
margin to remain at 30%-32% in the next one to two years. Logan had
unrecognised contracted sales of CNY70 billion in 1H19, which have
gross profit margin of about 30% and will be recognised as revenue
over the next 18-24 months. High-margin primary land development
income will continue to contribute to the company's total revenue
in next three to five years, which also support the company's
EBITDA margin.
Larger Sales Scale: Logan's contracted sales rose by 31% to CNY85.2
billion in 11M19. The contracted floor space sold rose 80% to 4.0
million sq m, but the contracted average selling price (ASP)
moderated to CNY13,510/sq m due to higher sales from the Nanning
region, where prices are lower. The company has met its full-year
sales target of CNY85 billion in 2019. It had saleable resources of
CNY105 billion for launch in 2H19, including the high-ASP Shenzhen
Acesite Park with an estimated ASP of around CNY55,000 per sq m.
Fitch expects Logan's annual contracted sales to increase to CNY90
billion in 2019 and CNY115 billion in 2020.
Concentration Risk Reduced: Fitch believes Logan's well-located
land bank and expansion into new cities, including the Yangtze
River Delta, Hong Kong and Singapore, in the last 12-24 months will
mitigate concentration risks over the next year or two. Presales
for the projects in Yangtze River Delta and Singapore were launched
in 1H19 and they contributed 3% and 6%, respectively, to Logan's
total contracted sales (2018: Yangtze River Delta: zero, Singapore:
5%). While the Greater Bay Area (including Shenzhen) remains the
largest contracted sales driver, accounting for around 53% of
Logan's total attributable contracted sales in 1H19 (1H18: 70%),
Fitch expects sales contribution from the Greater Bay Area to
reduce to around 50% in 2020-2021.
DERIVATION SUMMARY
Logan's contracted sales are comparable with those of 'BB' rated
Chinese homebuilders, such as CIFI Holdings (Group) Co. Ltd.'s
(BB/Stable) CNY76 billion, and are higher than those of 'BB-' rated
peers, which have contracted sales of CNY40 billion-60 billion,
including China Aoyuan Group Limited (BB-/Positive) and Yuzhou
Properties Company Limited (BB-/Stable).
Logan's leverage of 36% at end-June 2019 is also lower than 40%-45%
of other 'BB' rated peers such as CIFI and Seazen Group Limited
(BB/Stable). However, CIFI's asset-light non-property development
revenue generated EBITDA that covered interest by 0.3x in 2018
(Logan: less than 0.1x) and Fitch believes that the non-development
property segment is significant and sufficiently stable to provide
some support to CIFI's rating.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Contracted sales of CNY90 billion in 2019 and CNY115 billion
in 2020 (2018: CNY71 billion)
- EBITDA margin, with capitalised interest excluded from cost
of sales, of 30%-32% in 2019-2020 (1H19: 34%)
- 45%-50% of contracted sales proceeds to be spent on land
acquisitions in 2019-2020 to maintain a land bank sufficient
for around five years of development
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Leverage, as measured by net debt/adjusted inventory that
proportionately consolidates joint ventures and associates,
sustained below 35%
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Leverage sustained above 40%
- EBITDA margin, excluding capitalised interests from cost of
goods sold, sustained below 30%
LIQUIDITY
Sufficient Liquidity: Logan had total cash on hand of CNY38.3
billion, including CNY3.3 billion of restricted cash and pledged
deposits but excluding assets under cross-border guarantee
arrangements of CNY2.8 billion, as of end-June 2019, sufficient to
cover short-term debt and corporate bonds of CNY21.8 billion and
liabilities under cross-border guarantee arrangements of CNY3.2
billion.
RADIANCE GROUP: Fitch Rates New USD Sr. Unsec. Notes 'B'
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Fitch Ratings assigned China-based homebuilder Radiance Group Co.,
Ltd.'s (B/Stable) proposed US dollar senior unsecured notes a
rating of 'B' with a Recovery Rating of 'RR4'. The proceeds will be
used to refinance existing onshore debt.
The proposed notes are rated at the same level as Radiance's senior
unsecured rating because they constitute its direct and senior
unsecured obligations. The proposed notes will be issued by its
wholly owned subsidiary, Radiance Capital Investments Limited, and
will be unconditionally and irrevocably guaranteed by the parent.
Radiance's ratings are supported by its diversified and quality
land bank that is focused in tier-one and two cities across six
regions in China. This provides a strong asset base for sustainable
contracted sales scale and growth. The company's ability to acquire
large low-cost land parcels in its core markets helps to maintain
its healthy margins despite a moderate churn rate, measured by
attributable contracted sales/gross debt, of 1.1x-1.2x.
The ratings are constrained by high leverage - measured by net
debt/adjusted inventory, with joint ventures and associates
proportionately consolidated - of 58% at end-1H19. Fitch expects
leverage to stay high over the next 12-18 months due to large land
acquisitions and construction costs. The ratings are also
constrained by weaker financial transparency compared with listed
peers, especially in publishing operational data to support its
financial-statement performance, and the lack of an execution
record in meeting financial-management targets.
KEY RATING DRIVERS
High Leverage Constrains Ratings: Fitch estimates Radiance's
leverage - measured by net debt/adjusted inventory, with joint
venture debt and assets proportionately consolidated - stayed above
55% in 2019, higher than the below 50% leverage of most 'B+' peers.
Leverage is likely to stay high over the next 12-18 months,
assuming the company uses 50%-55% of attributable sales proceeds
for land acquisitions and a larger portion of sales proceeds than
in the previous three years for construction costs, as the delivery
of pre-sold projects picked up in 2019.
Radiance's leverage rose to 59% in 2017 (2016: 45%), as it
expedited its land-banking activity to support sales growth. The
company spent around 70% of sales proceeds to acquire land in 2017,
compared with 50% in 2016. Leverage improved slightly to 58% in
2018 and stayed flat in 1H19, as land acquisitions returned to the
company's usual 50% of sales proceeds. Radiance spent CNY15 billion
or 50% of sales proceeds, on a consolidated basis, to acquire land
in 1H19 and management has a land acquisition budget of 50%-60% of
sales collected.
Insufficient Disclosure: Radiance, an unlisted company, has limited
disclosure of operational information to support its
financial-statement performance compared with listed companies,
even though it discloses financial information half yearly due to
its outstanding domestic bonds. Radiance also lacks an execution
record of setting and meeting financial-management targets,
especially in controlling leverage and maintaining healthy
liquidity. These factors constrain Radiance's ratings, especially
when viewed in conjunction with its high leverage.
Diversified and Sufficient Land Bank: Radiance's diversified and
sufficient land bank with a focus in provincial capital cities and
municipalities should support sustainable contracted sales growth
and flexibility in land acquisitions, leaving room for
deleveraging. Radiance had 100 projects under construction and 30
in reserve across 30 cities in south, south-west, north-west and
east China, as well as the Yangtze River Delta and the Bohai Rim,
at end-1H19. Its geographical concentration is balanced, with no
area accounting for more than 25% of total sellable resources. Its
total land bank gross floor area (GFA) of 19 million sq m at
end-1H19 is sufficient for three to four years of development.
Access to Low-Cost Land: Radiance's development projects are highly
profitable due to its acquisition of large parcels of cheap land
from facilitating urbanisation and enhancing value for local
governments. Following the successful development of new areas in
Chongqing, Xi'an, Fuzhou and Huai'an, the company acquired another
two large land parcels in the city of Xi'an and Wuhan at very low
cost in 2018. However, such opportunities are rare, hence Fitch
estimates land cost was CNY4,200/sq m in 2019, the average cost of
projects available via public auctions. The average cost of
Radiance's land bank was around CNY4,000/sq m, or 30% of its
average selling price (ASP), at end-1H19.
Lower but Healthy Margins: Fitch estimates Radiance's gross profit
margin fell to around 35% in 2019, as revenue recognised during the
year was mainly from sales in 2017 and 2018, about half of which
were contributed from land acquired in 2017 that had a high
cost/ASP ratio. However, its EBITDA margin probably had a smaller
drop, as Fitch thinks selling, general and administrative expenses
consumed a smaller portion of revenue on slower sales growth.
Margins should stay stable in 2020 and 2021, with low-cost land
acquired in 2018 starting to contribute to sales. The gross profit
and EBITDA margins, both excluding capitalised interest, were a
high 40% and 30%, respectively, over 2017 and 2018.
Sufficient Record of Domestic Funding: Radiance has a record of
onshore debt funding, but has limited access to offshore debt
funding and onshore equity funding. The company has adequate
relationships with key Chinese banks, with total credit lines of
CNY24 billion from the four largest Chinese banks at end-1H19.
Radiance has also issued asset-backed securities and public
domestic bonds. More than half of its borrowings came from bank
development loans as of end-2018, which have a borrowing cost of
below 6%, while trust loans and asset-management products accounted
for 25% of total borrowings.
DERIVATION SUMMARY
Radiance's total sales scale of CNY75 billion in 2018 was
comparable with that of peers in the 'BB' range. Its land bank
diversification and quality are also comparable with those of 'BB'
peers, such as Yuzhou Properties Company Limited (BB-/Stable).
Radiance has a larger sales scale and more diversified land bank
than Hong Kong JunFa Property Company Limited (B+/Stable), which is
also unlisted. Up to 80% of Junfa's land bank is located in Kunming
and another 10%-15% in the rest of Yunnan province, although the
concentration risk is mitigated by the company's strong
relationship with the local government and expertise accumulated
over 20 years of operations. Junfa's leverage is 10 percentage
points (pp) lower than that of Radiance and the rising recurring
non-development property (DP) EBITDA from its large-scale wholesale
trade centre in Kunming contributes to non-DP EBITDA interest cover
of over 0.5x, while Radiance's recurring non-DP interest-cover
ratio is only 0.1x. Junfa's lower leverage and significant
recurring non-DP EBITDA justify the one-notch rating difference.
Radiance's sales and EBITDA scale is smaller than that of Kaisa
Group Holdings Limited (B/Stable), but its land bank is more
diversified. Kaisa's leverage is 10pp-15pp higher than that of
Radiance, but the nature of Kaisa's urban-renewal business and its
stronger profitability mean it can operate at a higher leverage
than other Chinese homebuilders for a sustained period. Kaisa's
longer land-bank life of four years and its large urban-renewal
project pipeline provide more flexibility in land acquisition and
leave room for deleveraging.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Attributable contracted sales increasing by 20% in 2019 and
10% a year thereafter (2018: 48%)
- Sales collection rate of around 85% in 2019-2020 (2018: 84%)
- Land replenishment rate at 1.4x-1.5x in 2019-2020 to sustain
a land-bank life of three to four years (2018: 1.8x)
- Land premium to represent 50%-55% of sales receipts in
2019-2020 (2018: 49%)
- Funding costs at 7.5% for new borrowings (2018: 7.4%)
KEY RECOVERY RATING ASSUMPTIONS
- Radiance would be liquidated in a bankruptcy as it is an
asset-
trading company
- 10% administration claims
- Cash balance is adjusted such that only cash in excess of the
higher of accounts payables and three months of contracted
sales is factored in
- 25% haircut to net inventory in light of Radiance's healthy
EBITDA margin of 25%-30%
- 50% haircut to investment properties after considering the
rental yield of Radiance's investment-property assets and
their location
- 30% haircut to accounts receivables
- 60% haircut to financial assets at fair value through
profit and loss
Based on its calculation of the adjusted liquidation value after
administrative claims, Fitch estimates the recovery rate of
Radiance's offshore senior unsecured debt to be within the 'RR4'
recovery range.
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Leverage, measured by net debt/adjusted inventory, sustained
below 55%
- EBITDA margin, after adding back capitalised interest in cost
of goods sold, sustained at 25% or above
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Leverage, measured by net debt/adjusted inventory, above
65% for a sustained period
- EBITDA margin, after adding back capitalised interest in cost
of goods sold, below 20% for a sustained period
LIQUIDITY AND DEBT STRUCTURE
Reliant on Refinancing: Radiance had unrestricted cash of CNY13.5
billion at end-1H19, which was insufficient to fully cover CNY15.9
billion of short-term debt, including CNY1.7 billion of bonds that
were puttable in 2H19. Holders of CNY1.47 billion of bonds did not
exercise their put options on September 28. Fitch believes the
company will be able to refinance debt, as it had unutilised credit
facilities of CNY63.7 billion and net unencumbered assets of
CNY19.1 billion at end-1H19.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
Radiance has an ESG relevance score of 4 for financial transparency
because its ratings are constrained by the absence of public
disclosure on its operational information in support of its
financial-statement performance.
SUNAC CHINA: Fitch Assigns BB Rating to Proposed USD Sr. Notes
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Fitch Ratings assigned a 'BB' rating to Sunac China Holdings
Limited's (BB/Stable) proposed US dollar senior notes. The proposed
notes are rated at the same level as Sunac's senior unsecured
rating because they will constitute its direct and senior unsecured
obligations.
Sunac's rating reflects Fitch's expectation that the company will
continue deleveraging until it sustains more headroom below 40%,
the leverage threshold above which Fitch may consider negative
rating action. Sunac's leverage, measured by net debt/adjusted
inventory with proportional consolidation of joint ventures (JV)
and associates, was 39% at end-1H19.
Sunac aims to control land acquisitions and investments in 2H19.
Its large attributable land bank of more than 136 million square
metres (sq m) of saleable gross floor area is well-diversified
across various regions in China, which should support contracted
sales and further deleveraging.
KEY RATING DRIVERS
Leverage to Decrease: Sunac's leverage increased to 39% by
end-1H19, from 38% at end-2018, as the company made significant
land acquisitions. Debt at the consolidated level rose by around
CNY70 billion, but the company's stable leverage ratio reflects the
increasing trend of funding JVs and associates at the parent level,
leading to relatively low leverage at the JVs and associates.
Sunac's land acquisition pace has since slowed and Fitch expects
the company to control the pace, which will give it some headroom
below the 40% leverage level.
Fitch expects Sunac to maintain steady growth in attributable
contracted sales, leading to sustained cash generation and lower
leverage. Attributable contracted sales rose by 7% to CNY147.9
billion in 1H19 and by 18% to CNY383.9 billion in 2019. Sunac's
trade payables have also risen significantly in line with its
expanding scale. Nevertheless, its trade payables/inventory ratio
was manageable at around 0.2x in 1H19 and 2018, which was lower
than that of peers that rely on trade payables to fund
construction. Fitch believes Sunac's trade payables/inventory ratio
will not rise significantly.
Diversified Land Bank: Sunac's land bank is diversified across
China, including northern, south-west and south-east China, the
Beijing area and the Yangtze River Delta. It also has a presence in
central China, the Greater Bay Area and Hainan province. Up to 83%
of Sunac's land bank, based on saleable value, is situated in Tier
1 and 2 cities, where pent-up demand is more robust than in
lower-tier cities. The remaining land bank is in strong third-tier
cities. Geographical diversification helps mitigate local policy
restrictions, as each local government implements differing
home-purchase limits.
Strong Sales and Margins: Fitch forecasts Sunac's average selling
price (ASP) to be CNY14,000-14,500/sq m in the next few years. The
company maintained its ASP at around CNY14,500/sq m in 2019,
reflecting its focus on higher-tier cities. Sunac's attributable
contracted sales are comparable with that of other large Chinese
homebuilders, including China Vanke Co., Ltd. (BBB+/Stable) and
Poly Developments and Holdings Group Co., Ltd. (BBB+/Stable).
Sunac's large scale also allows it to trim construction costs,
leading to a strong EBITDA margin - including the proportional
share of EBITDA from JVs and associates - of around 26% in 1H19, or
31% if valuation gains from acquired projects are removed from
costs of goods sold (COGS). Fitch expects an EBITDA margin,
including valuation gains in COGS, of around 25% in the medium
term.
Non-Development Contribution: Fitch forecasts Sunac will spend
CNY15 billion-21 billion a year in 2019 and 2020 to ramp up its
property management, rental and decoration businesses as well as
the cultural and tourism business it acquired in 2017. Fitch
expects the projects to be fully funded by the sale of properties
in the same area. Revenue contribution from Sunac's non-development
business was CNY3.4 billion in 1H19, with a gross margin of about
31%. Sunac also aims to improve the operating efficiency of the
cultural and tourism business after the acquisition of the
operational and management company from Dalian Wanda Commercial
Management Group Co., Ltd. (BB+/Stable).
DERIVATION SUMMARY
Sunac's homebuilding attributable sales scale and geographical
diversification are comparable with that of large 'BBB' rated
homebuilders, such as Vanke and Poly, and are also comparable with
or superior to that of Longfor Group Holdings Limited (BBB/Stable)
and Shimao Property Holdings Limited (BBB-/Stable).
Country Garden Holdings Co. Ltd. (BBB-/Stable) has larger
attributable scale and geographic coverage than Sunac. However,
Country Garden's land bank is more concentrated in low-tier cities,
where demand is susceptible to negative sentiment, while the
majority of Sunac's land bank is situated in Tier 1 and 2 cities,
as reflected in Sunac's higher margin.
However, Sunac's financial profile is more volatile than that of
investment-grade peers; its recurring EBITDA interest coverage of
0.3x is less than Longfor's 0.7x and Shimao's 0.5x.
Its leverage forecast for Sunac of around 35%-40% is more
comparable with 'BB' rated issuers, such as Sino-Ocean Group
Holding Limited (BBB-/Stable; Standalone Credit Profile: bb+),
Seazen Group Limited (BB/Stable) and its subsidiary, Seazen
Holdings Co., Ltd. (BB/Stable), CIFI Holdings (Group) Co. Ltd.
(BB/Stable) and China Aoyuan Group Limited (BB-/Positive).
Sunac's leverage is similar to that of China Evergrande Group's
(B+/Stable) 40% in 2018, but Sunac's trade payables/inventory ratio
of around 0.2x in 2018 was lower than Evergrande's 0.4x, with the
latter relying on trade payables to fund its construction.
Evergrande's high payables/inventory ratio constrains its ratings.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Land-bank replenishment to maintain a land-bank life of 4.0-4.5
years (2018: 4.6 years)
- Capex of CNY15 billion-21 billion a year in 2019 and 2020,
decreasing thereafter (2018: CNY14 billion)
- Contracted gross floor area to increase by 15% in 2019,
gradually falling to 5% growth in 2022 (2018: 33%)
- Contracted ASP of around CNY14,000-14,500/sq m (2018:
CNY15,210)
- EBITDA margin, including the effect of revaluation of acquired
projects from COGS, of around 22%-26% (1H19: 31%)
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Net debt/adjusted inventory below 30% for a sustained period
(1H19: 39%)
- EBITDA margin, excluding the effect of revaluation of acquired
projects from COGS, sustained above 25%
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Net debt/adjusted inventory above 40% for a sustained period
- EBITDA margin, excluding the effect of revaluation of acquired
projects from COGS, of below 20% for a sustained period
- Change in management strategy to refocus on aggressive
acquisitions, away from Sunac's stated objective to reduce its
leverage ratio
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: Fitch expects Sunac to maintain sufficient
liquidity for its operations and debt repayment, as contracted
sales reached CNY326 billion on an attributable basis in 2018.
Sunac had a cash balance of CNY138 billion at end-1H19, including
restricted cash of CNY39 billion, sufficient to cover short-term
debt of CNY121 billion. Sunac raised USD1.9 billion in offshore
senior notes in 2018 and USD3.6 billion in 2019.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
SUNAC CHINA: Moody's Assigns B1 Rating to New USD Unsec. Notes
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Moody's Investors Service assigned a B1 senior unsecured rating to
Sunac China Holdings Limited's (Ba3 stable) proposed USD notes.
The company plans to use the proceeds from the issuance mainly to
refinance existing debt.
RATINGS RATIONALE
"The proposed bond issuance will lengthen Sunac's debt maturity
profile without materially impacting its credit metrics, as the
company will mainly use the proceeds to refinance existing debt,"
says Danny Chan, a Moody's Assistant Vice President and Analyst.
Sunac's Ba3 corporate family rating reflects its strong sales
execution, leading brand and market position in China's Tier 1 and
Tier 2 cities, as well as the good quality of its land bank. The
rating also considers Sunac's good liquidity profile, driven by its
rapid asset turnover business model.
However, the CFR is constrained by Sunac's modest credit metrics, a
result of the company's business expansion and sizable acquisitions
over the past two to three years.
The company's investments in non-property businesses and
large-scale acquisitions of land bank in the past have also reduced
the stability of its cash flow and credit metrics.
Nevertheless, Moody's expects that the company's credit metrics
will improve over the next 12-18 months.
Specifically, Moody's expects Sunac's revenue/adjusted debt
(including adjustments for its shares in joint ventures and
associates) will trend towards 75% over the next 12-18 months from
around 60% for the 12 months ended June 2019, supported by an
expected increase in revenue recognition and controlled spending on
land purchases and non-property investments.
Similarly, Moody's expects Sunac's EBIT/interest (including
adjustments for its shares in joint ventures and associates) will
improve to around 3.0x from around 2.8x over the same period.
The expected increase in revenue is driven by the company's strong
contracted sales over the past two to three years.
Moody's expects the company's contracted sales will remain solid
over the next one to two years, supported by its established brand
name, quality products and sizable saleable resources.
Sunac reported 21% year-on-year growth in contracted sales to
RMB556.2 billion for 2019, following 27% and 140% growth in 2018
and 2017 respectively.
Sunac's liquidity is strong. The company's cash holdings of RMB138
billion as of June 30, 2019 covered about 114% of short-term debt
as of June 30, 2019. Moody's expects its cash holdings, together
with expected operating cash inflow, will be sufficient to cover
its short-term debt, land purchases, dividend payments, as well as
capital spending and payables for its previous acquisitions, over
the next 12 months.
In terms of environmental, social and governance (ESG) factors,
Sunac's Ba3 CFR incorporates the company's concentrated ownership,
its history of making sizable acquisitions and investments, and its
large investments in joint ventures.
The B1 senior unsecured debt rating is one notch lower than the
corporate family rating due to structural subordination risk. This
risk reflects the fact that the majority of claims are at the
operating subsidiaries and have priority over Sunac's senior
unsecured claims in a bankruptcy scenario. In addition, the holding
company lacks significant mitigating factors for structural
subordination.
The stable outlook reflects Moody's expectation that the company
will maintain healthy growth in contracted sales and revenue,
improve its profitability, control its investments in non-property
businesses and continue to deleverage over the next 12-18 months.
Upward ratings pressure could emerge if Sunac: (1) demonstrates its
ability to exercise restraint in its non-core business investments;
(2) maintains its solid liquidity position; and (3) improves its
credit metrics, such that adjusted revenue/debt rises above
95%-100% and adjusted EBIT/interest rises above 3.5x-4.0x on a
sustained basis.
However, the ratings could be downgraded in case of: (1) a material
decline in its contracted sales; (2) a weakening liquidity
position; (3) substantial investments in non-property development
businesses; or (4) weakening credit metrics, such that adjusted
revenue/debt falls below 60%-70% and adjusted EBIT/interest drops
below 2.5x-3.0x on a sustained basis.
The principal methodology used in this rating was Homebuilding And
Property Development Industry published in January 2018.
Listed on the Hong Kong Stock Exchange on October 7, 2010, Sunac
China Holdings Limited is an integrated residential and commercial
property developer with projects in China's main economic regions.
The company develops a diverse range of properties, including
high-rise and mid-rise residences, detached villas, town houses,
retail properties, offices and car parks.
SUNAC CHINA: S&P Assigns 'B+' Rating on New USD Unsec. Notes
------------------------------------------------------------
S&P Global Ratings assigned its 'B+' long-term issue rating to a
proposed issue of U.S. dollar-denominated senior unsecured notes by
Sunac China Holdings Ltd. (BB-/Stable/--). The China-based
developer intends to use the net proceeds primarily to refinance
its existing debt.
S&P said, "We rate the notes one notch below the issuer credit
rating on Sunac to reflect structural subordination risk. As of
June 30, 2019, Sunac's capital structure consisted of about Chinese
renminbi (RMB) 274 billion in secured debt and RMB65 billion in
unsecured debt (including guarantees for certain joint ventures and
associates of about RMB36.5 billion). As such, the company's
secured debt ratio is around 81%, which is significantly above our
notching-down threshold of 50% for issues. The issue rating is
subject to our review of the final issuance documentation.
"We do not expect the new issuance to significantly affect Sunac's
credit profile. The company achieved RMB556.2 billion of total
contracted sales for 2019, which is at the upper end of our
forecast. We anticipate the company will maintain strong sales
execution and sustainable profitability, while continuing to
gradually improve its financial leverage through cash collection
and more controlled spending in the core development business. This
is reflected in the stable rating outlook on the company."
YUZHOU PROPERTIES: Moody's Rates New Sr. Unsec. Notes 'B1'
----------------------------------------------------------
Moody's Investors Service assigned a B1 rating to Yuzhou Properties
Company Limited's proposed senior unsecured USD notes.
The rating outlook is stable.
Yuzhou intends to use the net proceeds from this offering primarily
to refinance its existing offshore indebtedness.
RATINGS RATIONALE
"The proposed bond issuance will support Yuzhou's liquidity and
lengthen its debt maturity profile," says Celine Yang, a Moody's
Assistant Vice President and Analyst. "In addition, the issuance
will not materially affect Yuzhou's credit metrics, because the
company will use the proceeds to refinance its maturing debt."
Moody's forecasts that Yuzhou's debt leverage — as measured by
revenue/adjusted debt and including shares from joint ventures and
associates — will gradually recover to around 60% towards the end
of 2020 from around 43% for the 12 months ended June 30, 2019,
driven by likely stronger revenue recognition and controlled debt
growth over the next 12-18 months.
Moody's points out that Yuzhou's higher-than-expected debt leverage
for the 12 months ended June 30, 2019 was mainly due to its raising
of additional debt to prefund its maturing debt and to fund land
purchases in 1H 2019.
Moody's expectation of Yuzhou's revenue growth over the next 12-18
months is based on the company's stronger contracted sales in the
last two years. Yuzhou's contracted sales grew notably by 33.2% to
RMB67.2 billion for the first 11 months of 2019, after growing 39%
to RMB56 billion in 2018.
Yuzhou maintained a good track record of high profit margins in the
31%-36% range in the past six years (2013-2018). But Moody's says
that its gross margin will likely fall to around 28%-30% in the
coming 12-18 months, because the price caps implemented in tier 1
and major tier 2 cities and increasing land costs will squeeze its
margins.
Consequently, Moody's estimates that the company's adjusted
EBIT/interest — including shares from joint ventures and
associates — will improve to a lesser extent than its improvement
in leverage, with adjusted EBIT/interest trending towards 2.7x-3.0x
in 2019-20 from 2.6x for the 12 months ended June 30, 2019.
Yuzhou's Ba3 corporate family rating reflects its (1) track record
of developing and selling residential properties in the Yangtze
River Delta, Bohai Rim and West Strait area, (2) growing operating
scale and improved geographic diversification, and (3) strong
liquidity.
However, its Ba3 rating is constrained by debt leverage that is
weaker than its Chinese property developer peers at the Ba3 rating
level.
Yuzhou's B1 senior unsecured debt rating is one notch lower than
its corporate family rating, due to structural subordination risk.
This risk reflects the fact that the majority of claims are at the
operating subsidiaries and have priority over Yuzhou's senior
unsecured claims in a bankruptcy scenario. In addition, the holding
company lacks significant mitigating factors for structural
subordination. As a result, the likely recovery rate for claims at
the holding company will be lower.
In terms of governance risk, Yuzhou's Ba3 CFR has considered the
company's concentrated ownership in its controlling shareholder,
Mr. Lam Lung On, who held a 57.45% stake in the company as of
November 20, 2019.
In terms of its policy on financial management, in the past four to
five years, Yuzhou has maintained its land acquisition spending at
around 50% of total cash received from property sales, and the
company has kept its reported net debt to equity below 75%. In
addition, Yuzhou's dividend payout ratio has stayed below 50% in
the past five years.
Related-party risk is partly mitigated by (1) Yuzhou's board, which
has eight directors in total, three of whom are independent
nonexecutive directors, (2) the presence of audit, remuneration and
nomination committees, which are all chaired by an independent
non-executive director, and (3) the presence of other internal
governance structures and standards, as required under the Listing
Rules of the Hong Kong Stock Exchange and the Securities and
Futures Ordinance in Hong Kong to oversee its corporate
governance.
Yuzhou's liquidity is good. At June 30, 2019, the company's cash
balance of RMB38.9 billion covered 285% of its short-term debt of
RMB13.7 billion. Moody's expects that over the next 12 months,
Yuzhou's cash holdings and operating cash flow will be sufficient
to cover committed land premiums, short-term debt and dividend
payments.
The stable outlook on Yuzhou's ratings reflects Moody's expectation
that the company will maintain its contracted sales and revenue
growth, strong liquidity position and measured debt growth.
Upward ratings pressure over the medium term could emerge, if
Yuzhou (1) grows in scale, (2) improves its credit metrics, (3)
maintains a strong liquidity position, or (4) establishes a track
record of access to the domestic and offshore debt markets.
Credit metrics indicative of upward ratings pressure include the
company showing (1) EBIT interest coverage in excess of 4.0x, or
(2) revenue/adjusted debt in excess of 90%.
Downward ratings pressure could emerge if Yuzhou shows a weakening
in its (1) contracted sales growth, (2) liquidity position, or (3)
credit metrics.
Credit metrics indicative of downward ratings pressure include (1)
cash/short-term debt below 1.5x, (2) EBIT interest coverage below
2.5x-3.0x, and (3) revenue/adjusted debt below 60% on a sustained
basis.
The principal methodology used in this rating was Homebuilding And
Property Development Industry published in January 2018.
Yuzhou Properties Company Limited is a property developer that
focuses on residential housing in the West Strait Economic Zone and
the Yangtze River Delta. Established in Xiamen in the mid-1990s,
Yuzhou is one of the city's largest developers. The company moved
its headquarters to Shanghai in 2016.
ZHENRO PROPERTIES: Fitch Assigns B+ Rating to New USD Sr. Notes
---------------------------------------------------------------
Fitch Ratings assigned Zhenro Properties Group Limited's
(B+/Stable) proposed US dollar senior notes a 'B+' rating, with a
Recovery Rating of 'RR4'. The notes are rated at the same level as
Zhenro's senior unsecured rating because they constitute its direct
and senior unsecured obligations. Zhenro intends to use net
proceeds from the issue to primarily refinance its existing debt.
Zhenro's ratings are supported by the company repaying its debt
through equity issuance and internally generated cash flow, which
Fitch believes has reduced its leverage - defined by net
debt/adjusted inventory, including proportional consolidation of
joint ventures and associates - to around 51% by end-2019, from 55%
in 1H19. Fitch believes Zhenro can sustain leverage at around 50%
as it pursues a less aggressive growth strategy than in the past
two years.
Zhenro's Issuer Default Rating is supported by its high-quality and
diverse land bank, healthy contracted sales growth, sales churn and
good margin. The rating is constrained by a small land bank, which
creates some pressure to replenish land and limits room for
significant deleveraging.
KEY RATING DRIVERS
Leverage Profile to be Maintained: Fitch believes Zhenro can
sustain a leverage profile commensurate with a 'B+' rating.
Leverage increased to 55% in 1H19, but Fitch believes subsequent
debt repayment from equity issuance and internal cash generation
has reduced leverage to around 51%. Zhenro spent around CNY16
billion on land acquisitions in 1H19, which represented around half
of 1H19's attributable contracted sales.
Fitch forecasts Zhenro will spend CNY35 billion on land acquisition
in 2019, resulting in leverage of around 50%. The company says it
spent CNY30 billion-31 billion in total, or CNY24 billion-25
billion on an attributable basis, on land acquisitions in 2019.
Chinese homebuilders have been more active in acquiring land in
Tier 2 cities during 2019, resulting in higher land premiums.
More Balanced Capital Structure: The cash/short-term debt ratio was
stable at 1.2x in 1H19. Fitch also expects funding costs to
continue to fall, as more expensive trust loans are replaced with
lower-cost financing. Zhenro has diversified its funding sources
since its IPO in 2018. The percentage of unsecured borrowings
increased to 41% of total debt in 1H19, from 34% in 2018. The
company continues to replace onshore non-bank borrowings with
offshore funding.
High-Quality Land Bank: Zhenro's land bank is focused on Tier 2
cities and is diversified across China's eastern, northern,
south-eastern, western and central regions. No single city accounts
for a significant portion to total sales, avoiding concentration
and regional-policy risks. This allowed Zhenro to achieve robust
attributable contracted sales growth in the previous three years,
with attributable sales reaching CNY58 billion-64 billion in 11M19.
The average selling price (ASP) dropped to CNY15,550/square metre
(sq m), from CNY16,770/sq m, due to a lower proportion of sales
from Tier 1 cities, but was still higher than that of most 'B+'
category peers.
Relatively Small Land Bank: Fitch estimates Zhenro's unsold
attributable land bank at end-1H19 was sufficient for around 2.5
years of development. The company relies on continuous land
acquisition to sustain contracted sales growth. This is likely to
drive Zhenro to replenish land bank at market prices and could
limit its ability to keep land costs low, especially as it buys
more land parcels in Tier 2 cities, where there is more intense
competition among developers. Fitch forecasts Zhenro will keep its
land-bank life at current levels, as Zhenro believes a larger land
bank would limit its flexibility to manage policy uncertainties.
Zhenro acquired new land at an average cost of CNY6,311/sq m in
1H19, 31% higher than in 2018. Land costs accounted for about 41%
of contracted sales ASP. Fitch expects the EBITDA margin to
gradually edge down from the 2018 level, following the same trend
as most other Chinese homebuilders.
Significant Minority Shareholders: Total non-controlling interest
in Zhenro's balance sheet increased to CNY10.6 billion in 1H19,
from CNY8 billion in 2018, due to minority shareholders completing
capital injections for projects acquired in 2018. Total
non-controlling interest was 36.5% of total equity in 1H19. Fitch
expects non-controlling interest to stay stable, as Zhenro sought
higher shareholdings in its land acquisitions during 2019, although
this also increased leverage in 1H19.
DERIVATION SUMMARY
Zhenro's leverage of 50%-55% and relatively small land bank
constrains its rating to the 'B+' category, while its sustainable
contracted sales scale and diverse and quality land bank is
comparable with those of 'BB-' peers. Zhenro's unsold attributable
land bank at end-1H19 was equivalent to around 2.5 years of GFA
sold, which is similar to that of Zhongliang Holdings Group Company
Limited (B+/Stable), but shorter than that of fast-churn peers.
Zhenro's leverage is at the higher-end of 'B+' peers, but is
complemented by a high-quality land bank, which drives its
contracted sales scale and satisfactory margin. Attributable
contracted sales of CNY56 billion and an EBITDA margin of 27% in
2018 were comparable with those of 'BB-' peers, such as Yuzhou
Properties Company Limited (BB-/Stable).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Attributable contracted sales of CNY62 billion-85 billion
a year in 2019-2022 (1H19: CNY30 billion)
- 10% drop in ASP in 2019, followed by a 0%-2% rise each year
in 2020-2022 (1H19: CNY15,382)
- Annual land premium to be maintained at around 2.5 years
of land-bank life, accounting for about 40%-55% of
attributable contracted sales (1H19: 54%)
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Leverage (net debt/adjusted inventory) sustained below 45%
- EBITDA margin, after adding back capitalised interest
in cost of goods sold, above 25% for a sustained period
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Leverage (net debt/adjusted inventory) above 55% for a
sustained period
- EBITDA margin, after adding back capitalised interest
in cost of goods sold, below 20% for a sustained period
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: Zhenro had unrestricted cash of CNY25.1
billion, pledged deposits of CNY0.5 billion, restricted cash of
CNY4.6 billion, undrawn bank credit facilities and the unused
onshore and offshore bond issuance quota for refinancing at
end-1H19, which were enough to cover short-term borrowings of
CNY24.9 billion. Zhenro in 2H19 raised CNY2.8 billion from the debt
and equity capital markets to repay debt and for refinancing
purposes. It repaid CNY5 billion of debt, which led to a CNY2.6
billion drop in net debt.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are credit
neutral or have only a minimal credit impact on the entity, either
due to their nature or the way in which they are being managed by
the entity.
ZHENRO PROPERTIES: Moody's Rates Proposed Sr. Unsec. Notes B2
-------------------------------------------------------------
Moody's Investors Service assigned a B2 rating to Zhenro Properties
Group Limited's (B1 stable) proposed senior unsecured USD notes.
Zhenro plans to use the proceeds from the proposed notes to
refinance existing debt.
RATINGS RATIONALE
"The proposed bond issuance will lengthen Zhenro's debt maturity
profile and will not have a material impact on its credit metrics,
because it will mainly use the proceeds to refinance existing
debt," says Cedric Lai, a Moody's Vice President and Senior
Analyst.
Moody's expects that Zhenro's debt leverage — as measured by
revenue/adjusted debt — will trend towards 60% over the next
12-18 months from around 40% for the 12 months ended June 30, 2019.
Its interest coverage — as measured by adjusted EBIT/interest —
should also improve to around 2.1x from 1.8x over the same period.
Zhenro's B1 corporate family rating (CFR) reflects the company's
(1) quality and geographically diversified land bank, which helps
the company to manage property market volatility and regulatory
risks; (2) ability to generate strong contracted sales growth; and
(3) good liquidity and improved access to funding, especially in
the debt capital markets.
On the other hand, the CFR is constrained by Zhenro's improving but
still-moderate financial metrics as a result of its rapid
debt-funded growth. The rating also considers Zhenro's considerable
participation in joint-venture (JV) businesses. However, most of
the company's JV partners are reputable.
Zhenro's liquidity is good. Moody's expects that the company's cash
holdings and cash flow from operating activities will be sufficient
to cover its maturing debt and committed land payments over the
next 12 months. The company's cash and cash equivalents/short-term
debt registered 121% at the end of June 30, 2019.
The B2 senior unsecured debt rating is one notch lower than the CFR
due to structural subordination risk. This risk reflects the fact
that the majority of Zhenro's claims are at its operating
subsidiaries and have priority over claims at the holding company
in a bankruptcy scenario. In addition, the holding company lacks
significant mitigating factors for structural subordination.
Consequently, the expected recovery rate for claims at the holding
company will be lower.
With respect to governance risk, Moody's has considered the
company's concentrated ownership by the owner family, which held a
64.56% stake in the company at July 30, 2019.
Moody's has also considered (1) the fact that independent directors
chair the audit and remuneration committees; (2) the low level of
related-party transactions and dividend payouts; (3) the presence
of other internal governance structures and standards as required
by the Hong Kong Exchange; and (4) the company's financial policy
to pursue expansion which resulted in its elevated leverage.
The stable rating outlook reflects Moody's expectation that Zhenro
will be able to execute its sales plan and remain prudent in its
financial management, such as by maintaining sufficient liquidity.
Moody's could upgrade Zhenro's ratings if the company (1)
demonstrates sustained growth in its contracted sales and revenue
through the economic cycles without sacrificing its profitability;
(2) remains prudent in its land acquisitions and financial
management; (3) improves its credit metrics, such that
EBIT/interest registers at least 3.0x and revenue/adjusted debt
rises to 75%-80% or above on a sustained basis; and (4) maintains
adequate liquidity.
On the other hand, the company's ratings could come under downward
pressure if Zhenro: (1) generates weak contracted sales; (2)
suffers from a material decline in its profit margins; (3)
experiences an impairment of its liquidity position, such that
cash/short-term debt falls below 1.0x; and/or (4) materially
increases its debt leverage.
Credit metrics indicative of a downgrade include EBIT/interest
coverage falling below 2.0x and/or adjusted revenue/debt falling
below 50%-55% on a sustained basis.
The principal methodology used in this rating was Homebuilding And
Property Development Industry published in January 2018.
Zhenro Properties Group Limited was incorporated in the Cayman
Islands in 2014 and listed on the Hong Kong Stock Exchange in
January 2018. At June 30, 2019, Zhenro had 167 projects in 29
cities across China. Its key operating cities include Shanghai,
Nanjing, Fuzhou, Suzhou, Tianjin and Nanchang.
The company was founded by Mr. Ou Zongrong, who indirectly owned
54.6% of Zhenro Properties at July 30, 2019. His sons, Mr. Ou
Guowei and Mr. Ou Guoqiang, together owned 9.96% of the company as
of the same date.
=========
I N D I A
=========
A K LUMBERS: Ind-Ra Migrates BB- Issuer Rating to Non-Cooperating
-----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated A K Lumbers
Limited's (AKLL) Long-Term Issuer Rating to the non-cooperating
category. The issuer did not participate in the rating exercise
despite continuous requests and follow-ups by the agency.
Therefore, investors and other users are advised to take
appropriate caution while using this rating. The rating will now
appear as 'IND BB- (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating actions are:
-- INR45 mil. Fund-based limits migrated to non-cooperating
category with IND BB- (ISSUER NOT COOPERATING) / IND A4+
(ISSUER NOT COOPERATING) rating; and
-- INR90.5 mil. Non-fund-based limits migrated to non-cooperating
category with IND A4+ (ISSUER NOT COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
January 3, 2019. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
Incorporated in 2000, AKLL, promoted by Mr. Atul Jindal, trades in
and processes timber logs, mainly teak and hardwood.
AGARWAL COAL: CARE Keeps B+ on INR6cr Loans in Not Cooperating
--------------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Agarwal
Coal Suppliers continues to remain in the 'Issuer Not Cooperating'
category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 6.00 CARE B+; Stable; ISSUER NOT
Facilities COOPERATING; on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking no default statement from Agarwal Coal
Suppliers to monitor the ratings vide e-mail communications dated
December 13, 2019, December 17, 2019, December 26, 2019 and
numerous phone calls. However, despite CARE's repeated requests,
the firm has not provided no default statement for monitoring the
ratings. In line with the extant SEBI guidelines, CARE has reviewed
the rating on the basis of the publicly available information which
however, in CARE's opinion is not sufficient to arrive at a fair
rating. The ratings on Agarwal Coal Suppliers' bank facilities will
now be denoted as CARE B+; Stable ISSUER NOT COOPERATING.
AIR INDIA: Ministerial Panel Approves Fresh Purchase Bids
---------------------------------------------------------
Financial Express reports that a ministerial panel headed by home
minister Amit Shah on Jan. 7 approved the drafts of expression of
interest (EoI) and share purchase agreement (SPA) for the
privatisation of debt-ridden Air India, but analysts were still
sceptical about the deal being concluded in the current financial
year. The EoI will be issued later this month, the report says.
FE relates that the AI Specific Alternative Mechanism (AISAM)
headed by Shah also approved a voluntary retirement scheme (VRS) as
well as another debt restructuring plan for the airline, sources
said, without elaborating. In June last year, the government called
off the proposed sale of 76% stake in AI as an EoI elicited no
response.
AI won't be a distress sale as it is a robust going concern and
potential buyers could capitalise on its premium bilateral rights
and parking slots across the world to revive its fortunes, the
sources claimed, FE relays. Also, the government would take over
some more debt of AI and pass on just a 'fair' amount of debt and
liabilities to the buyers, they added.
According to FE, the total debt and liabilities of AI rose to about
INR78,718 crore as on March 31, 2019. In a debt recast earlier this
fiscal, the Centre took over INR29,464 crore from AI's books
through a special purpose vehicle (SPV). The government may take
over another about INR20,000-crore debt to make it more attractive
for the potential suitors. The strategic buyer, of course, has to
take over the balance debt and liabilities, including debt backed
by assets and liabilities such as working capital loans and dues to
aviation fuel suppliers.
Even though employees of the carrier - over 11,000 at last count -
are likely to be offered job protection for one year, sources said
new owners could find most of the existing staff useful to expand
operations to meet higher demand for flights in certain
international routes, the report says.
FE relates that the department of investment and public asset
management (DIPAM), the nodal department for disinvestment, has
received "sufficient interest" from investors in its recent
roadshows in India and abroad, the sources claimed. The Centre is
expected to solicit interest from bidders for 100% stake in AI, its
subsidiary Air India Express and the carrier's 50% stake in joint
venture AISATS.
All the information are being frontloaded - along with EoI, DIAPM
would share the actual SPA and other information on a real-time
basis with bidders, sources, as cited by FE, said. Sharing of the
actual SPA would help investors take long-term view of various
liabilities and accordingly plan their funding for the deal.
Taking lessons from the failed attempt last year, the government
has reworked the offer document to make AI an attractive
proposition for interested parties, the report notes.
Probable reasons as analysed by transaction adviser EY for
non-receipt of bids last year included the government's decision to
retain 24% stake and corresponding rights, high amount of allocated
debt and profitability track record, according to FE. FE adds that
while the AI sale is unlikely to boost the non-debt capital
receipts of the government in any significant manner, the
government also appears to miss its disinvestment target of INR1.05
lakh crore for the current fiscal year given that it has garnered
only INR17,364 crore (17%) so far and the major strategic sales
like that of BPCL and ConCor are running behind schedule.
About Air India
Air India Ltd -- http://www.airindia.com/-- is the flag carrier
airline of India owned by Air India Limited (AIL), a Government of
India enterprise. The airline operates a fleet of Airbus and Boeing
aircraft serving various domestic and international airports. It
is headquartered at the Indian Airlines House in New Delhi.
As reported in the Troubled Company Reporter-Asia Pacific on March
28, 2014, The Times of India said Air India got a breather in the
form of INR1,000-crore equity infusion from the government
on March 26, 2014. According to the report, the airline's unending
financial stress had got worse as the Centre had so far given
INR6,000 crore instead of the promised INR8,500 crore for
the fiscal. As a result, AI had to bridge this gap by borrowing
money from banks at 11%-12%, which increased its debt servicing
burden, the report said. Before the infusion, the government had
injected INR12,200 crore into AI and there was a shortfall in
equity to the tune of INR3,574 crore -- despite the airline meeting
most of the milestone-linked equity targets -- leading to
a liquidity crunch, the report related.
Air India has posted continuous losses since 2007, according to The
Economic Times.
ALLIED INDIA: CRISIL Reaffirms B- Rating on INR10.5cr Cash Loan
---------------------------------------------------------------
CRISIL has reaffirmed its 'CRISIL B-/Stable' rating on the
long-term bank facilities of Allied India Iron and Steels Private
Limited (AI).
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Cash Credit 10.5 CRISIL B-/Stable (Reaffirmed)
The rating reflects AI's declining revenue and working capital
intensive operations. These weaknesses are partially offset by the
extensive industry experience of the promoter.
Key Rating Drivers & Detailed Description
Weakness
* Declining revenue trend: Revenue continues to decline at
INR11.79 crore in fiscal 2019 from INR13.26 crore in fiscal 2018
and INR18.34 crore in fiscal 2017. As a small player in the
domestic secondary steel industry, AI faces intense competition and
pricing pressure.
* Working capital intensity in operations: Pressure on working
capital persists, with gross current assets sizeable at 1185 days
as on March 31, 2019 (1058 and 699 days, respectively, in March
2018 and 2017). This is because of large debtors and inventory.
Debtors were high at 240 days as on March 31, 2019.
Strengths
* Extensive experience of the promoters: The key promoter, Mr
Mahboob Alam's experience of over two decades and his healthy
relationships with customers and suppliers should continue to
support business.
Liquidity Stretched
Liquidity remains under pressure on account of low cash accrual at
negative INR2.43 crore in fiscal 2019, against no maturing debt.
Bank lines were utilised 99% in the 12 months through November
2019.
Outlook: Stable
CRISIL believes AI will continue to benefit from the extensive
experience of its promoter.
Rating sensitivity factors
Upward Factor
* Increase in scale of operations and operating profitability
by more than 10% leading to positive cash accruals.
* Improvement in capital structure.
* Lower working capital requirements.
Downward Factors
* Decline in scale of operations by more than 10% leading to
low cash accruals.
* Stretched working capital cycle.
Established in 2004, AI promoted by Mr Mahboob Alam commenced
commercial production in January 2009. It manufactures
thermo-mechanically treated bars at its facility in Giridih
(Jharkhand).
ALTICO CAPITAL: Kotak Halts Bid for Shadow Bank
-----------------------------------------------
Bijou George and Rahul Satija at Bloomberg News report that the
race to find a rescuer for a struggling Indian shadow bank at the
center of an industry crisis has narrowed.
Altico Capital India Ltd. is one of the latest caught up in the
nation's shadow banking crisis that started in 2018, and had been
courting suitors. One of them, Kotak Investment Advisors Ltd.,
won't make a binding bid for Altico by a Jan. 15 deadline, people
familiar with the matter said, Bloomberg relates.
In India, non-bank financiers play a crucial role in funding
everything from condominium construction to purchases of personal
goods like cars and phones. Bloomberg says real-estate focused
Altico's restructuring and sale process comes as the broader
shadow-bank crisis drags on, hurting the property sector and the
economy.
According to Bloomberg, the non-bank lender's troubles have been
piling up since it started defaulting in September. Cerberus
Capital Management LP and SSG Capital Management are now the only
remaining external bidders, highlighting dwindling interest in
Mumbai-based Altico which is grappling with soaring bad loans, the
report states.
Kotak halted work on a binding bid for Altico after getting adverse
feedback from creditors, the people said, asking not to be
identified because the information is private, Bloomberg relates.
Mumbai-based Kotak's indicative offer hinged on a purchase of
either part or all of Altico's loan portfolio, one of the people
said. A low cash infusion and a high fee structure caused the
pushback, the second person said, Bloomberg relays.
Bloomberg says Cerberus Capital and SSG Capital are now competing
with an Altico shareholder-sponsored group to take over the shadow
lender after two other firms pulled out. Creditors met on Jan. 8 to
discuss how the winning bidder will be decided, one of the people
said, adds Bloomberg.
Altico was established in 2004 by the funds managed by Clearwater
Capital Partners as Clearwater Capital Partners India Private
Limited for wholesale lending to capital-constrained Indian small
and medium enterprises. It was registered as a
non-deposit-accepting non-banking finance company with the Reserve
Bank of India in January 2005. Its business strategy initially
focused on special situation opportunities across the capital
structure. In FY15, the company was renamed Altico Capital India
Limited, and its business strategy was changed. Altico is focused
on high-yield asset-backed senior secured credit opportunities in
the real estate sector.
CHAMPION OM DEV: CRISIL Moves B+ on INR13.7cr Credit to Stable
--------------------------------------------------------------
Due to inadequate information, CRISIL, in line with the Securities
and Exchange Board of India guidelines, had migrated its rating on
the long-term bank facilities of Champion Om Dev Construction Ltd
(CODCL) to 'CRISIL B+/Stable Issuer Not Cooperating' vide its
release dated November 04, 2019. However, the company's management
has subsequently started sharing the information necessary for
carrying out a comprehensive review of the rating. Consequently,
CRISIL is migrating its rating to 'CRISIL B+/Stable' from 'CRISIL
B+/Stable Issuer Not Cooperating'
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Cash Credit 13.75 CRISIL B+/Stable (Migrated
from 'CRISIL B+/Stable
ISSUER NOT COOPERATING')
The rating continues to reflect CODCL's below-average financial
risk profile, working capital-intensive operations, and
susceptibility to volatility in the prices of agricultural
commodities. These weaknesses are partially offset by promoters'
industry experience and funding support.
Key Rating Drivers & Detailed Description
Weaknesses:
* Below-average financial risk profile: Networth was small at
INR5.91 crore and gearing high at 5.17 times, as on March 31, 2019.
Total outside liabilities to tangible networth ratio was also weak
at 8.55 times. Debt protection metrics were average, with interest
coverage and net cash accrual to adjusted debt ratios of 1.78 times
and 0.06 time, respectively, for fiscal 2019.
* Working capital-intensive operations: Gross current assets
(GCAs) were 142 days because of large inventory of 68 days and
stretched receivables of 74 days, as on March 31, 2019.
* Susceptibility to volatility in raw material prices and changes
in regulations: The company is vulnerable to the risk of
unfavorable supply and price volatility of agricultural
commodities. It also faces risk related to tender-based business
for sand mining and stone crushing.
Strengths:
* Promoters' extensive experience and funding support: The company
will continue to benefit from its promoter's industry experience of
more than a decade. Promoter has also supported operations through
unsecured loans.
Liquidity Stretched
Cash accrual is expected to be INR2.25 crore and INR2.82 crore for
fiscals 2020 and 2021, respectively, should cover annual term debt
obligation of INR0.30 crore . Fund-based bank limit was utilised by
97.5% till November 2019. Current ratio was 1.19 times as on March
31, 2019.
Outlook: Stable
CRISIL believes CODCL will continue to benefit from the extensive
industry experience of its promoters.
Rating sensitivity factors
Upward factors
* Improvement in capital structure with reduction in debt,
resulting in gearing below 4 times
* Better working capital with lower GCAs
Downward factors
* Increase in debt or reduction in operating margin leading to
fall in interest coverage ratio below 1.70 times
* Deterioration in working capital requirement with increase
in GCAs.
Incorporated in 2008 and promoted by Ashok Kumar Singh and Neetu
Singh, CODCL is engaged in stone crushing at its facility in
Palamu, Jharkhand. It also trades in sand and agricultural
commodities, and provides logistics for the distribution of food
grains in Bihar.
CHINAR FORGE: CRISIL Lowers Rating on INR24cr Cash Loan to 'D'
--------------------------------------------------------------
CRISIL has downgraded its rating on Chinar Forge Limited (CFL) to
'CRISIL D/CRISIL D; issuer not cooperating' from 'CRISIL
BB+/Stable/CRISIL A4+; issuer not cooperating', as after factoring
in delay in term debt repayment over the past three months.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Cash Credit 24 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL BB+/Stable ISSUER
NOT COOPERATING')
Long Term Loan 12.2 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL A4+ ISSUER NOT
COOPERATING')
Non-Fund Based Limit 7.8 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL A4+ ISSUER NOT
COOPERATING')
CRISIL has been consistently following up with CFL and has sought
information via letters and emails dated July 22, 2019 and July 26,
2019, among others, apart from telephonic communication. However,
the issuer has remained non-cooperative.
'The investors, lenders and all other market participants should
exercise due caution while using the rating assigned/reviewed with
the suffix 'ISSUER NOT COOPERATING'. These ratings lack a
forward-looking component, as they have been arrived at without any
management interaction, and are based on the best available,
limited or dated information on the company.
Detailed Rationale
Despite repeated attempts to engage with the management, CRISIL has
not obtained any information on either the financial performance or
strategic intent of CFL. This restricts CRISIL's ability to take a
forward-looking view on the entity's credit quality. CRISIL
believes information available for the company is consistent with
'Scenario 1' outlined in the 'Framework for Assessing Consistency
of Information with 'CRISIL BB' rating category or lower.'
Based on the best available information, CRISIL has downgraded its
rating to 'CRISIL D/CRISIL D; issuer not cooperating' from 'CRISIL
BB+/Stable/CRISIL A4+; issuer not cooperating', as after factoring
in delay in term debt repayment over the past three months.
CFL, incorporated in 1992, manufactures household, industrial and
designer mats, carpets, wall to wall carpets. Operations of the
Jalandhar-based company are managed by Mr Sheetesh Vij.
DHARAMRAJ CONTRACTS: CRISIL Cuts Rating on INR34cr Loan to D
------------------------------------------------------------
CRISIL has downgraded its ratings on the bank facilities of
Dharamraj Contracts India Private Limited (DCIPL) to 'CRISIL
D/CRISIL D Issuer Not Cooperating' from 'CRISIL BB/Stable/CRISIL
A4+ Issuer Not Cooperating'.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Bank Guarantee 34 CRISIL D (ISSUER NOT COOPERATING;
Downgraded from 'CRISIL A4+
ISSUER NOT COOPERATING')
Cash Credit 16 CRISIL D (ISSUER NOT COOPERATING;
Downgraded from 'CRISIL BB/Stable
ISSUER NOT COOPERATING')
CRISIL has been consistently following up with DCIPL for obtaining
information through letters and emails dated October 31, 2018 and
April 09, 2019 among others, apart from telephonic communication.
However, the issuer has remained non cooperative.
'The investors, lenders and all other market participants should
exercise due caution while using the rating assigned/reviewed with
the suffix 'ISSUER NOT COOPERATING'. These ratings lack a forward
looking component as it is arrived at without any management
interaction and is based on best available or limited or dated
information on the company'.
Detailed Rationale
Despite repeated attempts to engage with the management, CRISIL
failed to receive any information on either the financial
performance or strategic intent of DCIPL, which restricts CRISIL's
ability to take a forward looking view on the entity's credit
quality. CRISIL believes information available on DCIPL is
consistent with 'Scenario 1' outlined in the 'Framework for
Assessing Consistency of Information with CRISIL BB' rating
category or lower'.
Based on the best available information, CRISIL has downgraded its
ratings on the bank facilities of DCIPL to 'CRISIL D/CRISIL D
Issuer Not Cooperating' from 'CRISIL BB/Stable/CRISIL A4+ Issuer
Not Cooperating'.
The downgrade reflects delay of 85 days in regularization of
overdrawals in the overdraft facility account due to delays in
payments from its debtors.
DCIPL was incorporated by Mr Chaman Singh and his father Mr Raj
Singh in January 2010 in Noida, Uttar Pradesh. The company
undertakes civil contracting work for residential and commercial
development for government authorities and private entities.
GEM ROUGH: CARE Lowers Rating on INR5cr LT Loan to B+
-----------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of Gem
Rough (GR), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long term bank 5.00 CARE B+; Stable; ISSUER NOT
facilities COOPERATING Revised from
CARE BB-; Stable Based on
Best available Information
Long term/ 7.00 CARE B+; Stable/CARE A4;
Short term ISSUER NOT COOPERATING
bank facilities Long term rating revised
From CARE BB-; Stable
short term rating reaffirmed
Based on best available
Information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from GR to monitor the rating(s)
vide e-mail communications/letters dated October 10, 2019, November
29, 2019, December 6, 2019 and numerous phone calls. However,
despite CARE's repeated requests, the company has not provided the
requisite information for monitoring the ratings. In line with the
extant SEBI guidelines, CARE has reviewed the rating on the basis
of the publicly available information which however, in CARE's
opinion is not sufficient to arrive at a fair rating. The rating on
GR's bank facilities will now be denoted as CARE B+; Stable/CARE
A4; ISSUER NOT COOPERATING.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
The long term rating has been revised on account of non
availability of sufficient information to carry out annual
surveillance.
Also, the banker due diligence could not be conducted.
Detailed description of the key rating drivers
At the time of last rating on February 11, 2019, the following were
the rating strengths and weaknesses.
Key Rating Weaknesses
Moderate albeit fluctuating scale of operation: The TOI has
declined by 8.03% in FY18 over FY17 to INR34.38 crore in FY18
(vis-à-vis INR37.38 crore in FY17) on account of lower orders
received due to the slowdown in the major export market.
Nevertheless, the overall operations continue to be moderate. The
firm has achieved total sales amounting to INR25.00 crore during
the period April 1, 2018 to December 20, 2018 and has current
orders in hand of 2.00 lakh to be executed by December 2018.
Further, the tangible net worth of the firm also remained small at
INR6.32 crore as on March 31, 2018 (vis-à-vis INR2.31crore as on
March 31, 2017) which however has increased on account of better
accretion of profits to reserves, thereby providing better
liquidity cushion to the firm.
Moderate operating margin and low net profit margin: GR being
engaged in trading of polished diamonds, the profitability margins
tends to remain at low. PBILDT margin of the firm improved
marginally from 2.84% in FY17 to 3.07% in FY18 on account of
decline in cost of traded goods along with decline in labor
charges. Similarly, the PAT margin has also improved marginally
from 1.17% in FY17 to 1.26% in FY18 in light of improvement in
operating margin.
Weak debt coverage indicators: The debt coverage indicators marked
by total debt to GCA stood weak at 11.07 times in FY18 vis-à-vis
16.11 times in FY17 owing to low gross cash accruals owing to low
profits. The same has improved in FY18 over FY17 owing to reduction
in debt level on the back of reduced dependence on working capital
bank borrowings and treating unsecured loans amounting to INR1.12
crore as subordinated to bank debt as per the bank sanction letter.
The interest coverage ratio stood stagnant at 1.70 times in FY18
vis-à-vis 1.72 times in FY17 owing to moderate profitability.
Working capital intensive nature of operation: Operations of GR are
working capital intensive as the funds are blocked in receivables,
inventory and payables. Collection period of the firm remained high
at 178 days in FY18 as the firm has to give credit period of 120
days to its export and domestic customers to maintain healthy
relationship with its clientele. Also, it takes 50% to 100% of
advance from the new customers. Average inventory period
deteriorated marginally and remained moderately high at 56 days in
FY18 as the firm has to keep certain quantity of traded goods to
meet the immediate demand from its customers. Furthermore the firm
receives around 90 days of credit period from its domestic
suppliers whereas it enjoys credit period of 90 days to 120 days
from its overseas suppliers. Average creditors period also improved
from 167 days in FY17 to 141 days in FY18 on account of better
payables management. Due to the same, operations of the company
remained working capital intensive wherein it utilized its working
capital borrowing limit of packing credit upto ~100% and post
shipment credit upto~100% during last 12 months ended November
2018. Debtors amounting to INR15.56 crore outstanding as on March
31, 2018 has been fully realized as on date i.e. December 20,
2018.
Foreign exchange fluctuation risk: GR derives majority of the
revenue from exports and imports thereby the firm is benefitting
from the natural hedge to certain extent. Further firm also has
forward contract limit of INR6.00 crore with bank. Though the firm
undertakes hedging through forward contracts and benefitting from
natural hedge, significant adverse changes in currency fluctuation
may impact the profitability of the firm. Nonetheless comfort can
be drawn from the fact that GR has foreign exchange gain of INR0.53
crore in FY18 vis-à-vis gain of INR0.18 crore in FY17. However
going forward, ability of the firm to maintain its profitability
margins amidst fluctuation in forex shall be critical from credit
perspective.
Presence in fragmented & competitive industry: The firm operates in
the Gems & Jewellery (G&J) industry which is a fragmented industry
with a high level of competition from both the organized and
largely unorganized sector. Moreover, the global & domestic
macroeconomic environment continues to remain uncertain and poses a
major challenge for the companies operating in G&J industry and
having major export revenues. Further, the prices of diamonds are
volatile and same has been experienced in the past. Thus the firm
carries uncertainty as it procures diamonds from the local markets
and sells it in the overseas market. Hence, any adverse changes in
prices of diamonds would have an adverse impact on profitability
margins of the firm.
Partnership nature of constitution: Being a partnership firm, GR
has inherent risk of withdrawal of partner's capital at the time of
personal contingency. Furthermore, it has restricted access to
external borrowings where net worth as well as creditworthiness of
the partner are the key factors affecting credit decision of the
lenders. Hence, limited funding avenues along with limited
financial flexibility have resulted in small scale of operations
for the firm.
Moderate liquidity position: The current ratio of the firm remained
comfortable at 1.66 times as on March 31, 2018 (vis-à-vis 1.20
times as on March 31, 2017) and the quick ratio stood comfortable
at 1.43x as on March 31, 2018 (vis-à-vis 0.86x as on March 31,
2017). Further, the firm has cash and bank balance amounting to
INR0.19 crore in the form of cash in FY18. The average utilization
of the working capital limit stood high at 100% during past 12
months ended November 2018. Further, cash flow from operations
remained negative at INR0.78 crore in FY18 vis-à-vis negative cash
flow from operations of INR0.13 crore in FY17. Also, NWC as a
percentage of total capital employed stood at 75.92% as on March
31, 2018 as against 70.50% as on March 31, 2017.
Key rating Strengths
Established track record of operations in gems and jewellery
business along with experienced partners: Gem Rough possesses an
established track record of over three decades in the business of
diamond trading and has established strong relations with the
customers. It is managed by the Sheth family and its partners, Mr.
Ashish Sheth and Mr. Gunvantlal Sheth. Over the years of their
presence, the partners have established strong and long standing
relations with the customers and suppliers. The partners are
supported by experienced management and skilled workers in their
day to day operations.
Comfortable capital structure: GR's capital structure stood
leveraged in past (FY16-17), however the same improved and stood
comfortable marked by overall gearing of 0.79x as on March 31, 2018
vis-à-vis 3.16x as on March 31, 2017, on the back of lower debt
level owing to reduced dependence on working capital bank
borrowings along with increase in the tangible net worth on the
back of accretion of profits to reserves in FY18 and treating
unsecured loans as quasi equity. The debt equity ratio also stood
comfortable at 0.25x as on March 31, 2018 vis-à-vis 1.17x as on
March 31, 2017. Moreover comfort can be drawn from the fact that
out of the total debt outstanding as on March 31, 2018, around 32%
is in the form of unsecured loans from promoters and related
parties having no fixed repayment schedule.
Gem Rough (GR) was established as a partnership firm in 1982 by Mr.
Gunvantlal Sheth. The firm is engaged in the business of trading of
polished diamonds ranging from 1 cent to 10 carat. The firm
procures polished diamonds through imports from countries namely
Antwerp (imports contributing to 20% of the total purchases in FY18
and in FY17) etc. and also procures domestically from Mumbai and
Surat.GR is an export oriented firm with exports contributing to
70% of the total sales in FY18 and FY17 with exports majorly to USA
and Hong Kong. It also has a group company namely P. Kirtilal & Co.
which is engaged in import and export of rough diamonds.
IPSUM MEDICARE: CRISIL Lowers Rating on INR8.95cr Loan to 'D'
-------------------------------------------------------------
CRISIL has downgraded the ratings on bank facilities of Ipsum
Medicare Private Limited (IMPL) to 'CRISIL D Issuer Not
Cooperating' from 'CRISIL B/Stable Issuer Not Cooperating'.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Proposed Long Term 3.05 CRISIL D (ISSUER NOT
Bank Loan Facility COOPERATING; Downgraded
from 'CRISIL B/Stable
ISSUER NOT COOPERATING')
Term Loan 8.95 CRISIL D (ISSUER NOT
COOPERATING; Downgraded
from 'CRISIL B/Stable
ISSUER NOT COOPERATING')
CRISIL has been consistently following up with IMPL for obtaining
information through letters and emails dated January 23, 2019 and
January 29, 2019 among others, apart from telephonic communication.
However, the issuer has remained non cooperative.
'The investors, lenders and all other market participants should
exercise due caution while using the rating assigned/reviewed with
the suffix 'ISSUER NOT COOPERATING'. These ratings lack a forward
looking component as it is arrived at without any management
interaction and is based on best available or limited or dated
information on the company'.
Detailed Rationale
Rating reflects delays in debt servicing by IMPL.
Despite repeated attempts to engage with the management, CRISIL
failed to receive any information on either the financial
performance or strategic intent of IMPL, which restricts CRISIL's
ability to take a forward looking view on the entity's credit
quality. CRISIL believes information available on IMPL, is
consistent with 'Scenario 1' outlined in the 'Framework for
Assessing Consistency of Information with 'CRISIL BB' category or
lower'.
Therefore, on account of inadequate information, lack of management
cooperation, and delays in debt servicing, the ratings on bank
facilities of IMPL have been downgraded to 'CRISIL D Issuer Not
Cooperating' from 'CRISIL B/Stable Issuer Not Cooperating'.
Furthermore, the company has not paid the fee for conducting rating
surveillance as agreed to in the rating agreement.
Incorporated on October 5, 2016, IMPL is a Lucknow-based healthcare
diagnostic centre that will provide lab testing (pathology) and
radio imaging (radiology) services. The company is promoted by Dr
Vaibhav Singh, Dr Pallavi Singh, and Ms Vibha Singh.
JINDAL WOOD: Ind-Ra Migrates BB- Issuer Rating to Non-Cooperating
-----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Jindal Wood
Products Private Limited's (JWPPL) Long-Term Issuer Rating to the
non-cooperating category. The issuer did not participate in the
rating exercise despite continuous requests and follow-ups by the
agency. Therefore, investors and other users are advised to take
appropriate caution while using this rating. The rating will now
appear as 'IND BB- (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating actions are as follows:
-- INR40 mil. Fund-based limits migrated to non-cooperating
category with IND BB- (ISSUER NOT COOPERATING) / IND A4+
(ISSUER NOT COOPERATING) rating;
-- INR170 mil. Non-fund-based limits migrated to non-cooperating
category with IND A4+ (ISSUER NOT COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
January 3, 2019. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
Incorporated in 1990, JWPPL is engaged in the trading and
processing of timber logs, mainly teak and hardwood.
KMC PLASTOCHEM: CRISIL Lowers Rating on INR4cr Cash Loan to D
-------------------------------------------------------------
CRISIL has downgraded the rating of KMC Plastochem (KMC) to 'CRISIL
D Issuer Not Cooperating' from 'CRISIL BB-/Stable Issuer Not
Cooperating on account of delays in term loan repayment.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Cash Credit 4 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL BB-/Stable ISSUER
NOT COOPERATING')
Proposed Long Term 6.5 CRISIL D (ISSUER NOT
Bank Loan Facility COOPERATING; Downgraded from
'CRISIL BB-/Stable ISSUER
NOT COOPERATING')
Term Loan 4.5 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL BB-/Stable ISSUER
NOT COOPERATING')
CRISIL has been consistently following up with KMC for obtaining
information through letters and emails dated August 30, 2019 and
September 3, 2019 among others, apart from telephonic
communication. However, the issuer has remained non cooperative.
'The investors, lenders and all other market participants should
exercise due caution while using the rating assigned/reviewed with
the suffix 'ISSUER NOT COOPERATING'. These ratings lack a forward
looking component as it is arrived at without any management
interaction and is based on best available or limited or dated
information on the company'.
Detailed Rationale
Despite repeated attempts to engage with the management, CRISIL
failed to receive any information on either the financial
performance or strategic intent of KMC, which restricts CRISIL's
ability to take a forward looking view on the entity's credit
quality. CRISIL believes information available on KMC, is
consistent with 'Scenario 1' outlined in the best 'Framework for
Assessing Consistency of Information with 'CRISIL BB' category or
lower'.
Based on best available information, CRISIL has downgraded the
rating to 'CRISIL D Issuer Not Cooperating' from 'CRISIL BB-/Stable
Issuer Not Cooperating on account of delays in term loan
repayment.
KMC was incorporated in 2012 and started its operations from
October 2015. It is promoted by Mr Naveen Kumar Gupta and
manufactures PCBs and LED bulbs. During fiscal 2017 it started
manufacturing injection mouldings, and commercial operations began
from January 2017. Mr Naveen Kumar Gupta manages operations.
LALITPUR POWER: Fitch Assigns BB+(EXP) Rating to New $750MM Notes
-----------------------------------------------------------------
Fitch Ratings assigned India-based Lalitpur Power Generation
Company Limited's proposed notes of up to USD750 million due 2030
an expected rating of 'BB+(EXP)'. The Outlook is Stable.
The final rating is contingent upon the receipt by Fitch of final
documents conforming to information already received as well as the
final pricing and financial closing of the notes.
RATING RATIONALE
The rating is underpinned by LPGCL's favourable 25-year take-or-pay
power purchase agreement (PPA) with Uttar Pradesh Power Corporation
Limited (UPPCL); pass-through of fuel costs; use of conventional
technology; experienced in-house operations and maintenance (O&M)
team; and a financial profile commensurate with the relevant rating
threshold. The rating also reflects weaker revenue risk arising
from the payment delays of its sole off-taker whose credit quality
is unknown but likely to be weak.
KEY RATING DRIVERS
Long-Term Take-or-Pay PPA, Payment Delays: Revenue Risk - Weaker
LPGCL's PPA provides for availability-based payments, which
insulates the company from electricity demand or merchant risks
until 2041, beyond the term of the debt. The PPA also provides for
variable charges, designed to cover costs including fuel and
variable O&M costs. The cash flows are largely independent of the
off-taker's dispatch. The revenue-risk assessment is constrained to
'Weaker' due to the chronic payment delays and mounting overdue
amounts from the off-taker, although the issue has been alleviated
after the central and state governments jointly took various
measures to improve the financial health of state distribution
companies (DISCOMs) and the efficiency of clearing overdue
payments.
UPPCL has also started making advance payments to LPGCL, mandated
by a Ministry of Power (MoP) order dated June 28, 2019. The MoP
order forces DISCOMs to maintain adequate letters of credit as
stipulated in their PPAs or make advance payment to generating
companies. Failure to do so would mean their power supplies from
the generating companies would be disrupted by the relevant load
centre. Fitch believes the order will have a positive impact though
a longer record of punctual payments has yet to be established.
Proven Technology, Experienced In-House O&M Team: Operation Risk -
Midrange
LPGCL's three supercritical pulverised coal units use conventional
commercially proven technology and commenced full operations in
December 2016 with the first unit connected to the grid in 2015.
Three-unit configuration provides redundancy for the purpose of
maintaining high overall plant availability. An in-house O&M team
is currently running the plant while outsourcing some maintenance
activities to third-party vendors. A reputable third-party
technical advisor (TA) has reviewed the plant design, maintenance
practices, operating history, O&M plan and budget among other
things and confirmed the technical robustness of the plant.
The plant has historically managed to meet the regulatory norms for
station heat rate and availability, with the exception of the
financial year ended March 31, 2018 when the availability was
affected by a shortage of coal and turbine blade failure at Unit 3,
which was subsequently fixed. Non-availability of coal was a result
of UPPCL's payment delays, which had a cascading effect resulting
in LPGCL's loss of both availability and fixed tariff charges. The
claimed loss amounting to INR7,540 million is in dispute and under
appeal before India's Appellate Tribunal for Electricity, adding to
other disputed receivables Fitch has assumed will be irrecoverable
in its financial projections.
Fuel Cost Pass-Through: Supply Risk - Midrange
LPGCL has fuel-supply agreements (FSAs) with subsidiaries of India
Coal Limited under a government scheme to centralise the process of
allocating coal to thermal power plants. The tenors of the FSAs
cover the life of the PPA. The contracted coal is sufficient to
satisfy approximately 62% of LPGCL's energy requirement calculated
at 85% plant load factor or all energy requirements at about 52%
plant load factor, which is in line with the plant's past
consumption. LPGCL purchases the remainder of the coal via
electronic auctions or imports it, if needed. The fuel costs are
passed through to UPPCL via the PPA variable charges, subject to
the company maintaining specified fuel efficiency.
Ring-Fenced Structure, Manageable Refinancing Risk: Debt Structure
- Stronger
Noteholders are protected by a ring-fenced structure and tight
covenants. The proposed notes are fully amortising and pay a fixed
interest rate. LPGCL expects to enter into hedge instruments to
substantially mitigate the currency risk. Noteholders benefit from
restrictive tests for cash outflow and distribution at a forecast
and historical debt-service coverage ratio (DSCR) of 1.65x and
project-life coverage ratio of 1.7x. Restricted payments range from
0% to 50% of excess operating cash subject to a graded gross
leverage ratio test of up to 4.5x. LPGCL plans to maintain various
reserve accounts including a debt service reserve account of six
months in principal and interest payable, a capex reserve account,
a liquidity reserve account of up to INR12,500 million, and a debt
redemption reserve account of up to INR 17,500 million. LPGCL also
plans to use excess cash after distribution to accelerate
deleveraging by repaying its remaining rupee loans voluntarily in
order of maturity. The security package is comprehensive and
noteholders enjoy direct access to the collateral pari passu with
other senior lenders, which in Fitch's view is stronger than other
similar thermal transactions in the region.
PEER GROUP
LPGCL's closest peers are Indonesian thermal issuers including PT
Lestari Banten Energi (LBE, notes rated BBB-/Stable) and PT Paiton
Energy (Paiton, notes rated BBB-/Stable). All three plants use
commercially proven technology and benefit from long term
take-or-pay PPAs. Paiton's and LPGCL's plants feature a three-unit
complex, providing redundancy in case any unit encounters forced
outage while LBE has only one unit and is hence more susceptible to
loss of availability. Paiton has the longest operating record, in
particular its units P7 and P8, while LBE and LPGCL are relatively
new plants.
Paiton and LBE have a 'Stronger' revenue-risk assessment,
contrasting with LPGCL's 'Weaker' assessment due to its huge
outstanding receivables from its revenue counterparty. LPGCL's long
revenue-collection cycle also leads to the adoption of merchant
thresholds in determining its rating. On the other hand, LPGCL has
a tighter structure, providing noteholders better protection
including direct access to the operating entity's cash flows, more
restrictive covenants and higher liquidity reserves. Under Fitch's
rating case, Paiton's overall metrics show an average and minimum
DSCR of 1.44x and 1.22x, respectively, while LBE has an average and
minimum DSCR of 1.43x and 1.27x, respectively.
RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to
negative rating action include:
- Any adverse resolution on disputed receivables or tariffs, and/or
operational underperformance resulting in average annual DSCR
ratios that are below 1.6x on a sustained basis
Future developments that may, individually or collectively, lead to
positive rating action include:
- Favourable resolutions on the disputes with the off-taker and
ongoing improvement in working capital, resulting in average annual
DSCR ratios that are above 1.8x on a sustained basis
TRANSACTION SUMMARY
The proposed notes of up to USD750 million will be issued by LPGCL,
which will use the proceeds to repay part of its existing senior
debt, fund its reserve accounts and meet issue expenses. The notes
are secured by a first charge of over 76% of capital stock, all
assets, key project documents, insurance, and certain accounts of
LPGCL on a pari passu basis with other existing senior lenders and
hedging counterparties. LPGCL expects to enter into financial
instruments to substantially hedge the currency risk.
FINANCIAL ANALYSIS
The key assumptions underpinning Fitch's base and rating cases
refer to availability, dispatch, heat rate, operating and capital
costs, and cost indexation. The Fitch base case utilises
management's projections as the starting point, which assumes the
plant will operate at the normative level stipulated under state
regulations in terms of availability, heat rate and fuel costs. The
Fitch base case adopts five months as the tariff-collection cycle
in line with the track record. The base case takes a conservative
view with respect to the disputed receivables amounting to around
INR24,960 million in aggregate and assume these will not be
recoverable.
The rating case incorporates a combination of further stresses on
the base case to simulate a reasonable downside scenario based on
Fitch's assessment of key risk factors, peer analysis, and the TA's
opinions. Key stresses include a constant 0.5% increase in heat
rate and 10% stress on both capex and operating costs in order to
reflect the uncertainty arising from the project's limited and
uneven track record. Fitch's rating case is more prudent towards
the tariff-collection cycle and applies a nine-month period. Under
the Fitch base case, the average DSCR is 1.72x with a minimum of
1.34x. Under Fitch's rating case, the average DSCR is 1.64x with a
minimum of 1.21x.
In addition, Fitch has tested LPGCL's resilience under various
stressed scenarios of reduced availability, increased operating
costs, higher coal prices, deterioration in the heat rate, and
variation in the inflation rate. The sensitivity scenarios were run
off the Fitch base case. Fitch has also performed breakeven tests
on the availability and station heat rate. The breakeven point is
triggered when the minimum DSCR ratio during the project life
reaches 1.0x (taking into account available cash and reserves). The
results show strong resiliency and indicate the project can
withstand a reduction in availability with approximately 14%
decrease in availability and about 18% increase in station heat
rate to reach the breakeven point.
Criteria Variation
Fitch applied a variation from its Thermal Power Project Rating
Criteria with respect to the counterparty risk. Typically, a debt
instrument's rating may be capped by the credit quality of its
revenue counterparties. Fitch does not currently rate LPGCL's
revenue counterparty that purchases power from LPGCL under the PPA
but Fitch does not believe a default by the off-taker would
necessarily lead to a default of the transaction. Fitch believes
the exposure is systemic in nature and the credit profile of the
off-taker does not cap the rating of LPGCL. The interaction between
LPGCL and UPPCL is regulated by relevant laws and regulations at
both central and state level and would need to be fulfilled on the
same terms by replacement entities in case of the incumbent's
failure to perform. Fitch considers exposure to the revenue
counterparty to be in the form of a possible temporary liquidity
stress rather than a constraint to the ratings.
Notwithstanding these factors, which are due to the poor, although,
improving payment record of UPPCL, Fitch believes it would be
prudent for LPGCL to meet a higher threshold to achieve the same
rating as other thermal power projects receiving fully contracted
revenue timely, all else being equal. Hence, Fitch has based the
rating of the proposed notes on the indicative DSCR thresholds
applicable to merchant projects instead of the ones for fully
contracted projects, while the cash flows are evaluated based on
the contracted prices.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of 3 - ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or to the way in which they are being
managed by the entity.
LALITPUR POWER: Moody's Gives (P)Ba3 Rating to New Sr. Sec. Notes
-----------------------------------------------------------------
Moody's Investors Service assigned a first-time provisional rating
of (P)Ba3 to the proposed 10-year USD750 million senior secured
notes to be issued by Lalitpur Power Generation Company Limited.
The rating outlook is negative.
Lalitpur will use the notes' proceeds to (1) repay part of its
existing senior debt, subordinated debt and capital creditors, (2)
create a debt service reserve account, and (3) finance general
corporate purposes.
The final rating will be predicated on Moody's satisfactory review
of the final transaction documents, including the final currency
hedging mechanism and due diligence reports at issuance.
RATINGS RATIONALE
"The (P)Ba3 rating on the proposed USD notes is underpinned by
Lalitpur's predictable revenue stream under its long-term power
purchase agreement and the allowed pass-through of most of the
costs under its terms," says Abhishek Tyagi, a Moody's Vice
President and Senior Analyst.
"At the same time, the rating captures Lalitpur's exposure to a
single off-taker - Uttar Pradesh Power Corporation Limited (UPPCL)
-- which has a weak financial profile and a track record of delayed
payments. Our view on UPPCL's credit quality has factored in the
likelihood of continued support from the Government of Uttar
Pradesh," adds Tyagi.
The (P)Ba3 rating also considers Lalitpur's relatively weak
position on the merit order and its short and uneven operational
track record. At the end of November, the power station's
availability was below the normative level of 85%, due to issues
with coal supply encountered during the first six months of the
fiscal year ending March 2020. According to management, the issue
has since been rectified and the power station's availability has
improved.
The negative outlook on the rating considers (1) the weakening
economic conditions in India, which in turn are affecting the
credit quality of distribution companies in India, including UPPCL,
and (2) the operating issues encountered so far this year, which --
if sustained or repeated in the future -- would pressure Lalitpur's
financial metrics.
Moody's projects that Lalitpur's debt service coverage ratio
(Moody's DSCR) will average in the mid-1.2x range over the term of
the bond, which has factored in movements into and out of its
dedicated debt redemption reserve (DRR) as part of cash flow
available for debt servicing. This differs from the average DSCR in
the mid-1.3x range calculated per the definition in the proposed
bond document, which recognizes releases from -- but not the
deposits into -- the DRR.
The rating is supported by the terms of the proposed notes that
restrict material cash leakage and the requirement to maintain
multiple reserves to ensure sufficient liquidity in the event that
payments from UPPCL are delayed. In addition to a six-month debt
service reserve account, Lalitpur is required to fund other
reserves including the DRR and a liquidity reserve account prior to
making restricted payments, which could provide up to INR30 billion
of additional cover against liquidity shocks.
However, before the reserves are fully funded, Lalitpur's liquidity
position will depend heavily on its ability to maintain on-going
access its working capital facilities and drawdown from its
committed debt facilities to partly fund its capital expenditure
requirements.
Lalitpur's DSCR is exposed to the risk of delays in the approval
and implementation of tariff increases related to recovery of costs
incurred in prior periods, because of the materiality of these
receivables and the bespoke treatment of voluntary debt prepayments
in the DSCR calculation. Any delay or under-recovery of these past
receivables would affect the project's ability to fund reserves and
make voluntary prepayments, resulting in downward pressure on its
DSCR.
To mitigate the currency risk stemming from the absence of USD
revenues, which are needed to service the proposed USD notes,
Lalitpur will enter into hedging arrangements for both interest and
principal amounts.
The (P)Ba3 rating is predicated on the successful implementation of
the proposed hedging strategy to substantially insulate Lalitpur
from currency risk.
The USD senior secured notes will share security on a pari passu
basis with the existing project lenders and working capital
lenders, including a first charge on all movable and immovable
assets of the power plant, project documents and a pledge on 76% of
the issuer's shares. The exception being the DRR, which is only
available to bond holders.
In terms of environmental, social and governance (ESG) factors, the
rating also considers the moderate carbon transition risk for
Lalitpur, as a coal-based power project. This risk is however
mostly mitigated by the terms of PPA, which allows costs associated
with changes in the law, including environmental regulations, to be
passed on in tariffs.
Moody's has also considered the recent announcement by the
Government of India around measures to enforce timely payment by
state-owned distribution companies to power producers. Upon
establishing a track record, these measures would help improve the
credit profile of power projects, including Lalitpur.
The outlook on the rating could return to stable if there is a
sustained improvement in the power station's availability over the
next 12-18 months, and in the operating conditions for distribution
companies in India, including UPPCL.
Moody's does not expect to upgrade the rating over the next 12-18
months, given the negative outlook and limited opportunity
available to Lalitpur to meaningfully increase its revenue
organically.
That said, Moody's could upgrade the bond rating if Lalitpur's
average Moody's DSCR increases to above 1.4x on a consistent basis,
and if there is evidence supporting the effectiveness of the new
payment mechanism introduced by the government on a sustained
basis.
The rating could come under downward pressure if Lalitpur's average
Moody's DSCR deteriorates below 1.25x on a sustained basis.
In addition, Moody's could downgrade the rating if there is (1) a
change the size of the final issuance, scheduled amortization
profile, or the all-in interest cost from the scenario reviewed by
Moody's, leading to a deterioration in the project's average
Moody's DSCR, (2) any delays or reductions in the recovery of prior
period costs, relative to the assumptions incorporated into Moody's
base case, (3) further evidence of operational issues at the power
station, affecting its availability relative to the normative
level, or (4) deterioration in the off-taker's credit quality, or
increase in payment delays.
The principal methodology used in this rating was Power Generation
Projects published in June 2018.
Lalitpur Power Generation Company Limited operates a coal-based,
super critical, thermal power project of 1,980MW with the three
fully operational units. The units were commissioned progressively
in December 2015, October 2016 and December 2016. The project has a
25-year PPA with Uttar Pradesh Power Corporation Limited (UPPCL)
for 100% of the off-take, which is based in a two-part tariff.
MANAPPURAM FINANCE: Fitch Gives BB-(EXP) Rating to USD Sec. Notes
-----------------------------------------------------------------
Fitch Ratings assigned Manappuram Finance Limited's (MFIN,
BB-/Stable) proposed US dollar-denominated senior secured notes an
expected rating of 'BB-(EXP)'. The notes will be issued under
MFIN's USD750 million medium term note programme (BB-). The final
rating is subject to the receipt of final documentation conforming
to information already received.
The proposed notes will carry a fixed-rate coupon payable
semi-annually with a maturity of three years. The notes will be
secured by MFIN collateral and at all times rank pari passu and
without any preference among themselves. Collateral includes all
the issuer's standard assets, stage-1 assets and stage-2 assets,
and excludes all non-performing assets or stage-3 assets. The notes
are also subject to maintenance-based covenants that require MFIN
to ensure the security coverage ratio is at or greater than 1.0x at
all times.
The proposed US dollar-denominated notes will be issued in the
international market. The issuer will use the net proceeds of the
notes for onward lending and general corporate purposes in
accordance with approvals granted by the Reserve Bank of India and
directions on external commercial borrowings.
KEY RATING DRIVERS
MFIN's proposed notes are rated at the same level as the company's
Long-Term Foreign-Currency Issuer Default Rating, in accordance
with Fitch's rating criteria.
Fitch regards the secured notes as an obligation whose non-payment
would best reflect uncured default as most of MFIN's debt is
secured. The company can issue unsecured debt in the overseas
market, but such debt is likely to constitute a small portion of
its funding and so cannot be viewed as its primary financial
obligation.
RATING SENSITIVITIES
The proposed notes' rating will move in tandem with MFIN's
Long-Term Foreign-Currency IDR. MFIN's IDR is sensitive to rising
leverage (if debt/equity breaches 5x). Following the issue of the
proposed notes, Fitch does not expect MFIN's leverage to materially
increase (3.6x at end-September 2019).
PATEL JIVA: CARE Migrates B+ on INR6.8cr Debt From Not Cooperating
------------------------------------------------------------------
CARE Ratings has migrated the rating on bank facilities of Patel
Jiva Sales Private Limited from Issuer Not Cooperating category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long term Bank 6.85 CARE B+; Stable Revised from
Facilities CARE B+; Stable; ISSUER NOT
COOPERATING
Short term Bank 8.00 CARE A4 Revised from CARE A4;
Facilities ISSUER NOT COOPERATING
In the absence of minimum information required for the purpose of
rating, CARE was unable to express an opinion on the ratings of
Patel Jiva Sales Private Limited and in line with the extant SEBI
guidelines, CARE revised the rating(s) of bank facilities of the
company to 'CARE B+; Stable/CARE A4; ISSUER NOT COOPERATING'.
However, the company has now submitted the requisite information to
CARE. CARE has carried out a full review of the ratings and the
rating(s) stand at 'CARE B+; Stable/CARE A4'.
Detailed Rationale & Key Rating Drivers
The ratings to the bank facilities of Patel Jiva Sales Private
Limited continues to remain constrained by its small scale of
operations, weak coverage indicators, working capital intensive
nature of operations and weak liquidity position. The ratings are
further constrained on account of vulnerability to fluctuation in
price of timber and currency rates coupled with intense competition
and dependence on real estate sector. The ratings, however, draws
comfort from experienced promoters, comfortable capital structure
and moderate profitability margins coupled with its established
relationship with reputed customers.
Positive Factors:
* Improvement in scale of operations followed by increase in
operating income up to 40 crores on a sustained basis.
* Decline in operating cycle of less than 180 days on a sustained
basis.
Negative Factors:
* Deterioration in capital structure marked by overall gearing
above 1.50x on sustained basis
Detailed description of the key rating drivers
Key Rating Weakness
Small scale of operations
The scale of operations of PJS has been fluctuating for the past
three financial years (FY17-FY19). The scale of operations has
remained small marked by a total operating income and gross cash
accruals of INR18.24 crore and INR0.38 crore respectively during
FY19 (FY refers to the period April 1 to March 31) as against
INR22.20 crore and INR0.42 crore in FY18 mainly on account of lower
quantity sold to customers. Further, the company's capital base
stood moderate at INR11.09 crore as on March 31, 2019. The small
scale limits the company's financial flexibility in times of stress
and deprives it from scale benefits. Further, the company has
achieved total operating income of INR11.00 crore for 8MFY20
(refers to period April 1 to November 30; based on provisional
results).
Weak coverage indicators
Owing to moderate debt levels consequently resulting into high
finance cost and lower GCA levels; the debt service coverage
indicators continued to remain weak as marked by interest coverage
ratio and total debt to GCA of 1.25x and 22.81x for FY19 as against
1.28x and 25.02x for FY18.
Working capital intensive nature of operations
The operation of PJS continues to remain working capital intensive
in nature marked by operating cycle of 372 days during FY19 mainly
on account of high average collection period at 396 days during
FY19 which elongated from 306 days during FY18. The company majorly
caters to real estate customers. Owing to slowdown of real estate
sector, their payments get delayed which further results into delay
in receivables of PJS. Being a trading and processing company, PJS
is required to maintain adequate inventory of material on account
of transit time (around 2 months from date of order) and ensure
regular supply of timber logs for uninterrupted saw mill operations
resulting into high average inventory period of around 129 days
during FY19. The company imports timber from various countries
under L/C (D/A basis). Therefore average creditor's period remained
high of 153 days. The high working capital requirements were met
largely through bank borrowings which resulted in almost full
utilization of its sanctioned working capital limits for 12 months
period ended November, 2019.
Vulnerability to fluctuation in price of timber and currency rates
PJS imports timber from countries like Myanmar, South Africa,
Belgium etc. This exposes the company to adverse changes in
government policies in these countries with respect to timber
exports. Moreover, PJS imports timber and its import procurement to
total raw material purchases stood at 70% in last two financial
years. With initial cash outlay for procurement in foreign currency
and sales realization in domestic currency, the company is exposed
to the fluctuation in exchange rates which the company does not
hedge. Since there is a long time lag between raw material
procurement, liquidation of inventory and payments to its
creditors, the company is exposed to the risk of any adverse
fluctuations in the currency markets and may put pressure on the
profitability of the company. The risk is more evident now that the
rupee has registered considerable volatility and could leave the
company carrying costly inventory in case of sudden appreciation.
Intense competition and dependence on real estate sector
The timber industry is marked by the presence of unorganized
players who primarily cater to the regional demand to reduce
incidence of high transportation costs as price is the main
differentiating factor in the timber industry. This results in
intense competition which has a cascading effect on the player's
margins. Further, timber industry is primarily dependent upon the
demand of real estate and construction sector across the globe. The
real estate industry is cyclical in nature and is exposed to
various external factors like the deposable income, interest rate
scenario etc. any adverse movement in the macro economic factors
may affect the real estate industry which in turn would impact the
demand for PJS's product.
Key Rating Strengths
Experienced and resourceful promoters
PJS is promoted by Mr. Govind Patel and Mr. Dharmen Patel. Mr.
Govind Patel has experience of nearly four decades in trading of
timber and looks after the overall affairs of the company. Mr.
Dharmen Patel has an experience of a decade in trading of timber
and plywood and looks after the procurement & sales and finance
function. The promoters of the company are resourceful and had
infused funds at regular intervals in the form of unsecured loans.
Comfortable capital structure and moderate profitability margins
As on March 31, 2019, the debt profile of PJS comprised of term
loan of INR2.94 crore, and working capital bank borrowings of
INR5.73 crore as against tangible net worth of INR11.09 crore. The
capital structure of the company continues to remain comfortable on
account of comfortable net worth base coupled with moderate
reliance on external debt to meet its capex and working capital
requirements. The capital structure of the company improved and
stood comfortable as marked by overall gearing ratio of 0.78x as on
March 31, 2019 as against 0.99x as on March 31, 2018. The
improvement is on account of repayment of debt obligations of the
company. The PBIDLT margin of the company stood moderate at 10.17%
for FY19 as against 9.53% in FY18. The company traded high margin
timber and wood during FY19 resulting in increase in PBILDT
margins. Similarly, PAT margin stood moderate at 1.71% in FY19 as
against 1.45% in FY18.
Established relationship with reputed customers
Though the company is exposed to customer concentration risk with
top 5 customers contributing ~40% of total sales however, the risk
is mitigated to a large extent as the company has established
relationship with them for more than 10 years. Client base includes
customers like Fankar Interiors Private Limited, SGC Contracts
India Pvt. Ltd. (ICRA BBB-/A3), Globe Interiors Pvt. Ltd. Swati
Interior Concept Pvt. Ltd. etc.
Liquidity: Stretched
The company has stretched liquidity position characterized by
tightly matched accruals of INR0.38 crore in FY19 to repayment
obligations of its term loans. The working capital borrowings of
the company are fully utilized as marked by low unencumbered cash
and bank balance of INR0.88 crore as on March 31, 2019.
Patel Jiva Sales Private Limited (PJS) was initially incorporated
as Patel Sales Corporation, a partnership firm in 1969. The name
and constitution of the firm was changed to its present status in
2010. The operations of the company are handled by Mr. Govind Patel
and Mr. Dharmen Patel. The company is engaged into trading and
processing of timber logs. The company is also engaged in trading
of plywood and laminates. PJS's saw mill units are located at
Gandhidham, near to Kandla port and at Kriti Nagar, Delhi. The
units have the installed capacity to process ~ 100 meters (m) of
timber per day.The company has established relations of more than
10 years with majority of its suppliers which enables PJS to get
timely supply of timber, plywood and laminates. Jiva Plywoods
Private Limited, an associate concern of PJS was incorporated in
December, 2015 and is engaged in trading of plywood.
PRAKASH POLYESTER: CARE Reaffirms B+ Rating on INR7.89cr Loan
-------------------------------------------------------------
CARE Ratings reaffirmed ratings on certain bank facilities of
Prakash Polyester Private Limited (PPPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank
Facilities 7.89 CARE B+; Stable Reaffirmed
Short-term Bank
Facilities 0.30 CARE A4 Reaffirmed
Detailed Rationale & Key Rating Drivers
The ratings assigned to the bank facilities of PPPL continues to be
constrained by small scale of operation, fluctuating operating
margin coupled with low profit margin, leveraged capital structure
and weak debt coverage indicators, working capital intensive nature
of operations with stretched liquidity position and presence in
highly fragmented and competitive textile industry.
The above constraint continues to be offset by long track record
and experienced promoter in the fabric trading industry along with
group support and locational advantage.
Key Ratings Sensitivities
Positive Factors
* Improvement in scale of operation despite high competition:
Improvement in scale of operation to a level of around INR50-75
crore on sustained basis
* Maintain its profitability margins: Maintain its operating
margins in range of 12.15% and net profit margin in range of
4-6%, amidst the volatile raw material price and considering
competition in the industry.
* Maintained its capital structure and debt protection matrix at
comfortable level: Ability of the company to keep its capital
structure below unity level and interest ratio in range of 3-5x
times and total debt /GCA in range of 5-7x times.
Negative Factors
* Elongation in collection period: Elongation in collection
period beyond 200 days.
Detailed description of Key rating drivers
Key rating Weakness
Small scale of operations: Total operating income improved
significantly by 87.01% and stood at INR18.29 crore in FY19
(visà-vis INR9.78 crore in FY18) due to increased demand coupled
with increased production efficiency achieved due to installation
of new machineries at its existing plant located at Silvassa.
Furthermore, during 8MFY20 (refers to the period April 1, 2019 to
November 30, 2019); PPPL has achieved the total income of INR9.87
crore. Moreover, the company possesses an order book position worth
INR1.15 crore as on December 12, 2019, to be executed by December
2019Nevertheless, the small scale limits the company's financial
flexibility in times of stress and deprives it of scale benefits.
Fluctuating operating margin and low profit margin: The operating
margin of the company has reflected fluctuating in the range of
4.19% – 13.45% during the period FY16-19 due to volatility in the
raw material prices (prices of which are linked with cotton price)
and contributed 65-75% towards total cost of sales. Further PPPL's
PBILDT margin improved by 205 bps from 11.40% in FY18 to 13.45% in
FY19 on account of better sales realization. Further PAT margin
remained low in the range of 0.15% - 0.92% during the period
FY16-FY19 owing to higher depreciation and interest cost. Further
PAT margin declined by 77 bps and stood at 0.15% in FY19
(vis-à-vis 0.92% in FY18) owing to increase in interest and
depreciation cost.
Leveraged capital structure and weak debt coverage indicators: The
capital structure remained leveraged owing to high dependence on
external borrowings to support the operations coupled with low
networht base. Further the capital structure has deteriorated over
the last year and stood leveraged marked by debt to equity of 1.93x
times and overall gearing of 3.81x as on March 31, 2019 (vis-à-vis
1.68x times and 3.65x times respectively as on March 31, 2018),
owing to infusion of additional unsecured loans amounting to
INR0.48 crore in FY19 from directors and relatives. Despite
increase in debt level, the debt coverage indicator has improved
marked by TDGCA and interest coverage ratios stood at 8.68x times
and 1.79x times respectively in FY19 (vis-à-vis 8.62x times and
1.24x times respectively in FY18) owing to improvement in operating
profit thereby resulted into increase in cash accruals.
Working capital intensive nature of operations: The operations of
PPPL are highly working capital intensive in nature with majority
of funds blocked in debtors on account of high bargaining power of
the existing customers and on the other hand the company receives
low credit period from its suppliers, leading to an average
utilization of 70% of its sanctioned working limits for the last
12-months ended as on November, 2019.
Stretched Liquidity: Liquidity is marked by tightly matched
accruals to repayment obligations and the unencumbered cash & bank
balance was around INR0.19 crore as on March 31, 2019 (vis-à-vis
0.12 crore as on March 31, 2018).
Further its working capital limits were utilized around 70% during
the past 12 months ended November, 2019, supported by above unity
current ratio. Further the investment in net working capital as a
percentage of total capital employed stood at 61.09% as on March
31, 2019, whereas the net cash flow from operating activities stood
at INR1.17 crore in FY19.
Presence in highly fragmented and competitive textile industry:
PPPL operates in highly fragmented, organized and unorganized
market of textile industry marked by large number of small sized
players. The industry is characterized by low entry barrier due to
minimal capital requirement and easy access to customers and
supplier. Also, the presence of big sized players with established
marketing & distribution network results into intense competition
in the industry.
Key rating Strengths
Long track record and experience promoter in the fabric trading
industry along with group support: PPPL was established in 1997 and
has a track record of more than two decades in the manufacturing of
Fabric, Polyester Filament Yarn which is mostly used in fabric
industry. Moreover, Mr. Prakash N. Saraf and Mr. Ravi N. Saraf, are
the key promoters, have an extensive experience in this domain of
more than two decade and looks after the overall management of the
company. On account of long track record of operations and
experience of the promoters, the firm has gained reputation and has
established good relationships with their customers and suppliers.
Locational advantage: The manufacturing units of the company are
strategically located at Silvassa, which is in the vicinity of the
largest textile hub in India. The location of the plant provides
competitive advantage in terms of raw material procurement.
Incorporated in 1997, as a private limited company by Mr. Prakash
N. Saraf and Mr. Ravi N. Saraf Prakash Polyester Private Limited
(PPPL) is engaged in manufacturing of knitted and shirting fabric,
polyester filament yarn (PFY) ranging from 30 deniers to 150
deniers and is mostly used in fabric for suiting, shirting,
sportswear, innerwear, dress materials and other garments. The
company has its manufacturing unit in Silvaasa. PPPL procures its
raw material from indigenous suppliers like Reliance Industries
Limited, Sanathan Textiles Private Limited, Wellknown Polyesters
Limited etc. PPPL is predominantly a domestic player and it derived
100% revenue from domestic sales only.
PPPL has two group companies namely Bhimraj Syntex Private Limited
which is engaged in manufacturing of knitting & weaving fabrics
since 1986 and Prakash Yarn Agency which in engaged in trading of
variety of cotton yarns, ply yarns and special yarns since 1980.
PROTEUS ENTERPRISE: CRISIL Moves B+ Rating to Not Cooperating
-------------------------------------------------------------
Due to inadequate information, CRISIL, in line with SEBI
guidelines, had migrated the rating of Proteus Enterprise Private
Limited (PEPL) to 'CRISIL B+/Stable/CRISIL A4 Issuer Not
Cooperating'. CRISIL has withdrawn its rating on bank facility of
PEPL following a request from the company and on receipt of a 'no
dues certificate' from the banker. Consequently, CRISIL is
migrating the ratings on bank facilities of PEPL from 'CRISIL
B+/Stable/CRISIL A4 Issuer Not Cooperating' to 'CRISIL
B+/Stable/CRISIL A4'. The rating action is in line with CRISIL's
policy on withdrawal of bank loan ratings.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Bank Guarantee 6.75 CRISIL A4 (Migrated from
'CRISIL A4 ISSUER NOT
COOPERATING'; Rating
Withdrawn)
Overdraft 1.00 CRISIL A4 (Migrated from
'CRISIL A4 ISSUER NOT
COOPERATING'; Rating
Withdrawn)
Secured Overdraft .25 CRISIL B+/Stable (Migrated
Facility from 'CRISIL B+/Stable
ISSUER NOT COOPERATING';
Rating Withdrawn)
PEPL was incorporated in 2007, by Mr Paresh Vadher along with his
close aides, and began operations in 2011. The company is engaged
in erection, supply and commissioning of power transmission lines,
and electricity substations for the government and private
entities.
PUNJAB METAL: Ind-Ra Migrates BB- Issuer Rating to Non-Cooperating
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Punjab Metal Works
Private Limited's (PMWPL) Long-Term Issuer Rating to the
non-cooperating category. The issuer did not participate in the
rating exercise despite continuous requests and follow-ups by the
agency. Therefore, investors and other users are advised to take
appropriate caution while using this rating. The rating will now
appear as 'IND BB- (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating actions are:
-- INR20 mil. Fund-based limits migrated to non-cooperating
category with IND BB- (ISSUER NOT COOPERATING) / IND A4+
(ISSUER NOT COOPERATING) rating; and
-- INR35 mil. Non-fund-based limits migrated to non-cooperating
category with IND A4+ (ISSUER NOT COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
January 3, 2019. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
PMWPL, incorporated in 1975, was acquired by promoters of Jindal
Wood Products. The company processes plywood and veneer and trades
timber logs, mainly hardwood.
RAMKRUPA GINNING: CARE Reaffirms B+ Rating on INR20cr LT Loan
-------------------------------------------------------------
CARE Ratings reaffirmed ratings on certain bank facilities of
Ramkrupa Ginning and Pressing Private Limited (RGPPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank
Facilities 20.00 CARE B+; Stable Reaffirmed
Detailed Rationale and key rating drivers
The rating assigned to the bank facilities of RGPPL continues to
remain constrained on account of its thin profit margins, leveraged
capital structure and weak debt coverage indicators during FY19
(FY; refers to the period April 1 to March 31). Further, the rating
continues to remain constrained on account of presence of RGPPL in
the competitive and seasonal cotton ginning business with low value
addition, seasonality associated with the procurement of raw
material and susceptibility of its profit margins to raw material
price fluctuations.
The rating, however, continues to derive comfort from the
experienced promoters in cotton ginning industry along with
location advantage on account of it being located in the
cotton-producing belt of Gujarat. The rating also takes the note of
growth in scale of operations during FY19.
Rating Sensitivities
Positive Factors
* Continued growth of 30-40% in total operating income (TOI) while
reporting PBILDT margin of 4-5%
* Improvement in capital structure with overall gearing of around 2
times or lower
Negative Factors
* Decline in TOI by more than 30% or PBILDT margin below 1.5%
* Deterioration in liquidity position along with elongation in
working capital cycle by 50 days
Detailed description of the key rating drivers
Key Rating Weaknesses
Thin profit margins
The profit margins of RGPPL continued to remain low and declined by
171 bps y-o-y and remained at 2.11% in FY19 as against 3.82% during
FY18 on account of increase in raw material prices. Consequently,
PAT margin decreased to 0.10% during FY19 as against 0.27% during
FY18. The profit margins generally remain low on account of
low-value addition nature of cotton ginning and pressing business.
Leveraged capital structure and weak debt coverage indicators
RGPPL's capital structure though improved marginally continued to
remain leveraged marked by an overall gearing of 3.32 times as on
March 31, 2019 as against 3.82 times as on March 31, 2018. Further,
debt coverage indicators as marked by total debt to full form
(TDGCA) continued to remain weak at 57.92 times as on March 31,
2019 while the interest coverage ratio remained at 1.24 times
during FY19 as against 1.29 times during FY18.
Susceptibility of profit margins to raw material price fluctuations
and presence in the competitive and seasonal cotton ginning
business with low value addition
The margins of RGPPL remain vulnerable to demand-supply scenario
and prices of cotton which being an agro-commodity is seasonal in
nature and subject to vagaries of weather. Any adverse changes in
these variables may affect the margins of RGPPL. Moreover, the
industry is highly fragmented marked by presence of large number of
organized and unorganized players which intensifies competition.
Also, it is present in the cotton ginning business which is at the
lower end of the textile value chain having low value addition.
Key Rating Strengths
Experienced promoters in the cotton industry with location
advantage
The key promoters of the company have vast experience in the cotton
industry and have been involved in cotton ginning business for more
than two decades. RGPPL is based at Gondal region in Gujarat which
is one of the largest cotton producing region having benefits
derived out of stable power supply, labor, lower logistics
expenditure and easy availability and procurement of raw cotton at
effective prices.
Growth in scale of operations
The scale of operations of RGPPL increased significantly as marked
by a growth by 82% y-o-y in its TOI during FY19, to Rs104.34 crore
on account of trading operations initiated for cotton bales and
cotton seeds during FY19 along with increase in demand from its
existing customers for its manufactured products.
Liquidity: Stretched
The liquidity indicators of RGPPL remained stretched marked by
current ratio of 1.54 times as on March 31, 2019 as compared with
1.47 times as on March 31, 2018 while the operating cycle though
improved, remained elongated at 97 days during FY19, as against 182
days during FY18 on account of decrease of average inventory
holding period. The average working capital limits utilization
during past twelve months ended on November 2019 remained high at
95%. Cash and bank balance remained low at INR0.14 crore, while net
cash flow from operations remained comfortable at INR4.84 crore
during FY19. Net working capital to total capital employed remained
high at ~94% as on March 31, 2019. GCA level remained at INR0.37
crore which is sufficient against negligible debt repayment of
vehicle loans of INR0.02 crore during FY20.
RGPPL incorporated in the year 2006, is promoted by Mr. Bipinbhai
Gondaliya. RGPPL is into the business of cotton ginning and
pressing and trading of clean cotton. RGPPL is a family centric
business and is completely owned and managed by the family members
with four directors, who have more than 15 years of experience in
the cotton industry. RGPPL is engaged in ginning & pressing of raw
cotton to produce cotton bales, cotton seeds and cotton lint with a
manufacturing and production facility located at Gondal region,
Gujarat which is one of the leading cotton producing states in
India. As on March 31, 2019, RGPPL has an installed capacity to
produce 15,500 Metric Tonnes Per Annum (MTPA) of cotton seeds and
8,500 MTPA of cotton bales.
RELIGARE FINVEST: Lenders Agree to 49% Haircut on Debt
------------------------------------------------------
Suvashree Ghosh at Bloomberg News reports that creditors to a
struggling Indian shadow financier, once controlled by former
billionaires Shivinder Singh and Malvinder Singh, are finalizing a
rare debt recast in the sector by writing off almost half of the
company's loans, people familiar with the matter said.
Lenders to Religare Finvest Ltd., including State Bank of India,
have agreed to take a 49% haircut on its INR58 billion (US$808
million) debt, the people said, asking not to be identified as the
information isn't public, Bloomberg relates. The restructuring may
be implemented as early as the end of January, they said.
According to Bloomberg, any debt restructuring at Religare Finvest,
which is being bought by TCG Advisory Services Ltd., would be the
first among peers since the credit market squeeze started in 2018.
It could also be considered as an early sign of a winding down of
that crisis.
Bloomberg says the sector's fate is still far from certain. Other
delinquent shadow lenders, including Reliance Home Finance Ltd. and
Altico Capital India Ltd., are struggling to rework their debt.
Mortgage financier Dewan Housing Finance Corp. is facing
bankruptcy, the report states.
Religare Finvest, which had faced allegations of financial
irregularities under the previous owners, had since January 2018
been under the Reserve Bank of India's so-called corrective action
plan. That status restricts the financier from making new loans.
Banks will implement the debt recast after TCG injects fresh equity
into Religare Finvest, the people said, adds Bloomberg.
Religare Finvest Limited (RFL) was originally incorporated as
Skylark Securities Private Limited in 1995. It was converted into a
public limited company, Fortis Finvest Limited, in 2004. In March
2006, the company changed its name to Religare Finvest Limited. RFL
is a subsidiary of Religare Enterprises Limited.
SARANYA SPINNING: Ind-Ra Lowers LongTerm Issuer Rating to 'BB+'
---------------------------------------------------------------
India Ratings and Research (Ind-Ra) has downgraded Saranya Spinning
Mills Private Ltd.'s (SSMPL) Long-Term Issuer Rating to 'IND BB+'
from 'IND BBB-'. The Outlook is Stable.
The instrument-wise rating actions are:
-- INR148.7 mil. (reduced from INR239.9 mil.) Long-term loans due
on September 2025 downgraded with IND BB+/Stable rating;
-- INR400 mil. Fund-based facilities downgraded with IND
BB+/Stable/IND A4+ rating; and
-- INR5.4 mil. Non-fund-based facilities downgraded with IND A4+
rating.
The downgrade reflects SSMP's weakened liquidity position and
substantially weaker-than-expected revenue, operating performance
and credit metrics in FY19.
KEY RATING DRIVERS
Liquidity indicator - Poor: SSMP overutilized its fund-based limits
for a period of one to four days over the 12 months ended November
2019. The average maximum utilization of the limits was 99.6% for
the 12 months ended in November 2019. Also, its free cash flow was
negative during FY19, as the company had incurred CAPEX of INR145
million on the installation of new machinery and up-gradation of
existing machinery. As of November 2019, it had an outstanding term
loan of INR148.7 million that will be repaid fully by September
2025. Its cash flow from operations was INR8 million in FY19 (FY18:
negative INR157 million). The working capital cycle stretched to
147 days in FY19 (FY18: 90 days), mainly due to an increase in the
inventory days to 99 days (67 days) and a reduction in the
creditors days to 33 days (47 days). The increase in inventory
days was due to the prevailing slowdown and reduction in creditors
days was due to a shift in the purchase of viscose fiber on a 100%
advance basis from the mid of the year.
The rating factor in SSMP's lower-than-expected profitability, as
there were delays in profitability contribution from the made-ups
division. This along with a change in the raw material to viscose
yarn from cotton led to the absolute EBITDA falling to INR174
million in FY19 (FY18: INR191 million). The margins remained modest
at 10.5% in FY19 (FY18: 10.2%) and the return on capital employed
was 9.7% (10.4%). Also, the company remains exposed to the risks
inherent in the agricultural commodity-dependent business such as
raw material price fluctuations. Ind-Ra expects the margin to
improve from FY20, as the made-ups division which produces
high-margin products has started its full operations from January
2019.
SSMPL's revenue declined 11.0 % YoY to INR1,659 million in FY19,
due to constraints on the capacity utilization because of the shift
in the type of raw material used. Also, the company could not
achieve the expected revenue contribution from the made-ups
division, as the infrastructure required for the production was not
in place until January 2019; till then the company was mostly doing
job-works. SSMPL booked INR921 million in revenue for 7MFY20.
Ind-Ra expects the revenue to improve in the coming years with
revenue contribution from the made-ups division and benefits
derived from the up-gradation of machinery. The scale of operations
remains medium.
The interest coverage (operating EBITDA/gross interest expense)
fell to 2.6x in FY19 (FY18: 3.2x) and net leverage (total
debt/operating EBTIDA) increased to 4.4x (3.3x). The deterioration
in credit metrics was because bank limits' utilization increased
and creditor days reduced due to the 100% advance procurement of
viscose fiber.
The ratings are supported by the company's promoter's 25 years of
experience in the textile industry, leading to strong customer
relationships.
RATING SENSITIVITIES
Positive: A substantial improvement in revenue, operating EBITDA,
working capital cycle and liquidity position, leading to an
improvement in the net leverage below 3.5x on a sustained basis,
could be positive for the ratings.
Negative: Any decline in the revenue and operating EBITDA, any
unplanned debt-led CAPEX or a further stretch in the working
capital cycle leading to continued stress in the liquidity,
resulting in deterioration in the credit metrics on a sustained
basis, could be negative for the ratings.
COMPANY PROFILE
SSMPL was set up in 2001 by Mr. R Peraisamy and his son Mr. Ashok
Kumar. It manufactures viscose yarn, viscose fabric and polyester
cotton fabric at its spinning mill in Ponneri, Namakkal (Tamil
Nadu). The company has an installed capacity of 21,000 spindles and
680 rotors, and 54 looms.
SENCO GOLD: CRISIL Moves FB+ on INR99 Deposits to Not Cooperating
-----------------------------------------------------------------
CRISIL has migrated the rating on fixed deposit of Senco Gold
Limited (SGL) to FB+/Stable Issuer Not Cooperating'.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Fixed Deposits 99.00 FB+/Stable (Issuer Not
Cooperating)
CRISIL has been consistently following up with SGL for obtaining
information through letters and emails dated Nov. 19, 2019 and Dec.
10, 2019, Dec. 16, 2019 among others, apart from telephonic
communication. However, the issuer remains non-cooperative.
'The investors, lenders and all other market participants should
exercise due caution while using the rating assigned/reviewed with
the suffix 'issuer not cooperating'. This rating lacks a
forward-looking component, as it has been arrived at without any
management interaction, and based on the best available or limited
or dated information on the company'.
Detailed Rationale
Despite repeated attempts to engage with the management, CRISIL has
failed to receive any information on either the financial
performance or strategic intent of SGL. This restricts CRISIL's
ability to take a forward-looking view on the credit quality of the
entity. CRISIL believes that the information available for SGL, is
consistent with 'Scenario 2' outlined in the 'Framework for
Assessing Consistency of Information'. Based on the last available
information, CRISIL has migrated the rating on fixed deposit of SGL
to FB+/Stable Issuer Not Cooperating'.
SGL was incorporated in August 1994, as a private limited company,
and reconstituted as a public limited company, with the current
name in August 2007. Promoted by Mr Shankar Sen, Mrs Ranjana Sen,
and Mr Suvankar Sen, it manufactures and retails plain and studded
gold jewellery, along with diamond, platinum, and silver jewellery.
It also exports to wholesalers in Saudi Arabia, Dubai, and
Singapore.
SHAGUN REALTY: CRISIL Withdraws B+ Rating on INR20cr LT Loan
------------------------------------------------------------
CRISIL has withdrawn its rating on the bank facilities of Shagun
Realty (SR) on the request of the company and receipt of a no
objection certificate from its bank. The rating action is in line
with CRISIL's policy on withdrawal of its rating on bank loans.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Long Term Loan 20 CRISIL B+/Stable (ISSUER NOT
COOPERATING; Rating Withdrawn)
CRISIL has been consistently following up with SR for obtaining
information through letters and emails dated July 8, 2019 and July
12, 2019, among others, apart from telephonic communication.
However, the issuer has remained non cooperative.
'The investors, lenders and all other market participants should
exercise due caution while using the rating assigned/reviewed with
the suffix 'ISSUER NOT COOPERATING'. These ratings lack a forward
looking component as they are arrived at without any management
interaction and are based on best available or limited or dated
information on the company.
Detailed Rationale
Despite repeated attempts to engage with the management, CRISIL
failed to receive any information on either the financial
performance or strategic intent of SR. This restricts CRISIL's
ability to take a forward SR is consistent with 'Scenario 1'
outlined in the 'Framework for Assessing Consistency of Information
with CRISIL BB rating category or lower. Based on the last
available information, the rating on bank facilities of SR
continues to be 'CRISIL B+/Stable Issuer Not Cooperating'.
CRISIL has withdrawn its rating on the bank facilities of SR on the
request of the company and receipt of a no objection certificate
from its bank. The rating action is in line with CRISIL's policy on
withdrawal of its rating on bank loans.
SR, a partnership firm based in Navi Mumbai, was established on
April 2013. The firm develops residential and commercial real
estate projects in Navi Mumbai. Currently, four projects are being
implemented in Ulwe, Navi Mumbai. The partners have jointly
constructed real estate spaces of over 2.2 million square feet,
although in various firms/special purpose vehicles.
SHITAL FIBERS: CRISIL Lowers Rating on INR80cr Cash Loan to 'D'
---------------------------------------------------------------
CRISIL has downgraded its ratings on bank facilities of Shital
Fibers Limited (SFL) to 'CRISIL D/CRISIL D' from 'CRISIL
BB+/Stable/CRISIL A4+'.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Cash Credit 80 CRISIL D (Downgraded from
'CRISIL BB+/Stable')
Letter of Credit 39 CRISIL D (Downgraded from
'CRISIL A4+')
Rupee Term Loan 11 CRISIL D (Downgraded from
'CRISIL BB+/Stable')
The downgrade reflects delay by SFL, in meeting the term debt
obligation and continuous overutilization in working capital limits
for more than 30 days over the past six months.
The ratings also reflect the firm's large working capital
requirement and exposure to intense competition from local players.
These rating weaknesses are partly offset by extensive experience
of the promoter in the mink blankets industry.
Key Rating Drivers & Detailed Description
Weaknesses:
* Delay in debt servicing: SFL has not been able to service its
term debt on time with continuous overutilization in working
capital limits for more than 30 days, over the past six months.
* Large working capital requirement: Operations are working
capital intensive, with gross current assets, inventory and
receivables, at 245, 168 and 76 days, respectively, as on March 31,
2018. Inventory remains high due to large inventory requirement and
seasonal nature of business. The large working capital requirement
resulted in full utilised bank limits.
* Susceptibility to intense competition from local players and
cheaper Chinese imports: The Indian acrylic blanket industry has
numerous small, unorganised players, catering to localised markets
and resort to price-cutting, especially towards the low-end of
product segments. SFL also faces intense competition from local
players such as Kochar Sung Up Acrylic Ltd, Young Man's Woolen
(Ludhiana, Punjab); and Golden Tex (Panipat, Haryana), apart from
cheap Chinese imports.
Strength:
* Extensive experience of the promoter: Benefits from the
promoter's experience of over three decades, in the mink blanket
industry, and healthy relationships with suppliers and customers,
should continue. SFL manufactures and markets mink blankets under
the brands, Shital and Shilon.
Liquidity Poor
Liquidity is poor, as indicated by instances of delay in repayment
of term debt.
Rating Sensitivity factors
Upward Factors:
* Track record of timely debt servicing for at least 90 days,
and utilisation of the working capital within the limit
* Significant improvement in operating performance, with adequate
cash accrual and a stronger financial risk profile.
SFL was formed in 1992, by the promoter, Mr Shital Vij. The firm
manufactures acrylic mink blankets, and caters to domestic and
overseas markets. Manufacturing units are at Jalandhar, Punjab.
SHRIRAM TRANSPORT: Fitch Gives BB+(EXP) Rating to New USD Sec Notes
-------------------------------------------------------------------
Fitch Ratings assigned India-based Shriram Transport Finance
Company Limited's (BB+/Stable) proposed US dollar-denominated
senior secured notes an expected rating of 'BB+(EXP)'.
The proposed bonds will carry a fixed-rate coupon payable
semi-annually. The proposed notes will be secured by a fixed charge
over specified accounts receivable, in line with STFC's domestic
secured bonds and rupee-denominated senior secured bonds issued
overseas. The proposed notes are also subject to maintenance
covenants that require STFC to meet regulatory capital requirements
at all times, maintain a net stage 3 asset ratio equal to or less
than 7%, and ensure its security coverage ratio is equal to or
greater than 1x at all times. The proposed notes are likely to
carry maturities of three to five years.
The proposed US dollar-denominated notes will be issued in the
international market by the company under the Reserve Bank of
India's new external commercial borrowings framework issued in
January 2019.
The notes will be issued under STFC's global medium term-note
programme (affirmed at 'BB+' on December 16, 2019), which has been
upsized to USD3 billion from USD2 billion. The programme rating is
unaffected by the upsize.
KEY RATING DRIVERS
STFC's proposed bonds are rated at the same level as its Long-Term
Foreign-Currency Issuer Default Rating (IDR) of 'BB+', in
accordance with Fitch's rating criteria.
Most of STFC's debt is secured and Fitch believes that non-payment
of the company's senior secured debt would best reflect uncured
failure of the entity. STFC can issue unsecured debt in the
overseas market, but such debt is likely to constitute a small
portion of its funding and thus cannot be viewed as its primary
financial obligation.
SHRIRAM TRANSPORT: S&P Rates New USD Sr. Secured Notes 'BB+'
------------------------------------------------------------
S&P Global Ratings assigned its 'BB+' long-term issue rating to
3.5-year, benchmark sized, U.S. dollar-denominated senior secured
notes that Shriram Transport Finance Co. Ltd. (STFC:
BB+/Negative/B) proposes to issue. The notes are under STFC's US$3
billion multi-currency global medium-term note (GMTN) program. The
issue rating is subject to its review of the final issuance
documentation.
S&P equalizes the rating on the notes with the long-term issuer
credit rating on STFC. The notes are direct and unconditional
obligations of the company. They are secured and will rank equally,
without any preference, among themselves, and with all other
outstanding secured and unsubordinated obligations of the issuer.
The MTN program has performance-related covenants, which, if
breached, can result in an event of default and early redemption of
the bonds, subject to approval from the central bank. These
covenants are: STFC's capital adequacy ratio (CAR) should comply
with minimum regulatory requirements, and its net stage 3 loan
ratio should at all times be equal to or less than 7.0%. Stage 3
loans are impaired loans that are at least 90 days overdue.
S&P said, "We believe the risk of STFC breaching these triggers
over the next 12 months is low. The company has a strong market
position as the largest financier of commercial vehicles in India.
It benefits from high yields on its pre-owned commercial vehicles
portfolio and low operating costs, which compensate for the high
cost of wholesale borrowing and credit costs. The company's capital
base benefits from good internal capital generation, and its CAR of
20.4% as of Sept. 30, 2019, is well above the regulatory
requirement of 15%. We expect STFC to raise equity or Tier-2
capital to ensure compliance with regulatory minimum capital
requirements, if required."
As of Sept. 30, 2019, STFC's net stage 3 loan ratio was 6.2%.
Slower growth and weak economic activity in India are likely to
affect commercial vehicle utilization, which increases the risk of
asset quality deterioration over the next few quarters. While the
net stage 3 loan ratio is close to the trigger of 7%, S&P believes
the company's good profitability provides flexibility to absorb
higher provisions. Its reported return on assets is 2.5% as of
Sept. 30, 2019.
S&P believes STFC's pre-provision profits will provide sufficient
buffer in a stress scenario. And, if required, the company will
aggressively provide for its stage 3 loans to ensure it does not
breach the covenant.
SHUBHAM POLYSPIN: CRISIL Moves B+ Rating From Not Cooperating
-------------------------------------------------------------
Due to inadequate information, CRISIL, in line with SEBI
guidelines, had migrated the rating of Shubham Polyspin Limited
(SPPL) to 'CRISIL B+/Stable/Issuer not cooperating'. CRISIL has
withdrawn its rating on bank facility of SPPL following a request
from the company and on receipt of a 'no dues certificate' from the
banker. Consequently, CRISIL is migrating the ratings on bank
facilities of SPPL from 'CRISIL B+/Stable/Issuer Not Cooperating'
to 'CRISIL B+/Stable'. The rating action is in line with CRISIL's
policy on withdrawal of bank loan ratings.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Cash Credit 4.8 CRISIL B+/Stable (Migrated
from 'CRISIL B+/Stable
ISSUER NOT COOPERATING';
Rating Withdrawn)
Proposed Long Term 0.9 CRISIL B+/Stable (Migrated
Bank Loan Facility from 'CRISIL B+/Stable
ISSUER NOT COOPERATING';
Rating Withdrawn)
Term Loan 6.3 CRISIL B+/Stable (Migrated
from 'CRISIL B+/Stable
ISSUER NOT COOPERATING';
Rating Withdrawn)
Incorporated in 2012, SPPL is promoted by the Ahmedabad-based
Somani family. Key promoters, Mr Ankit Somani and Mr Nitin Somani,
have been in the plastic packaging industry for more than a decade
through group concern Shubham Tex-o-Pack Pvt Ltd.
SUNGRACIA TILES: CRISIL Lowers Rating on INR15cr Cash Loan to D
---------------------------------------------------------------
CRISIL has downgraded its rating on the bank loan facilities of
Sungracia Tiles Private Limited (STPL) to 'CRISIL D/CRISIL D Issuer
Not Cooperating' from 'CRISIL B/Stable/CRISIL A4 Issuer Not
Cooperating', on account of continuous over-utilisation of the
fund-based limit for over 30 days.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Bank Guarantee 3.1 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL A4 ISSUER NOT
COOPERATING')
Cash Credit 15.0 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL B/Stable ISSUER NOT
COOPERATING')
Corporate Loan 6.0 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL B/Stable ISSUER NOT
COOPERATING')
Letter of Credit 2.0 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL A4 ISSUER NOT
COOPERATING')
Proposed Long Term .24 CRISIL D (ISSUER NOT
Bank Loan Facility COOPERATING; Downgraded from
'CRISIL B/Stable ISSUER NOT
COOPERATING')
Term Loan 6.79 CRISIL D (ISSUER NOT
COOPERATING; Downgraded from
'CRISIL B/Stable ISSUER NOT
COOPERATING')
CRISIL has been consistently following up with STPL for obtaining
information through letters and emails dated November 15, 2019 and
Dec. 12, 2019, among others, apart from telephonic communication.
However, the issuer has remained non-cooperative.
'The investors, lenders and all other market participants should
exercise due caution while using the ratings assigned/reviewed with
the suffix 'issuer not cooperating'. These ratings lack a
forward-looking component as they have been arrived at, without any
management interaction, and are based on the best available or
limited or dated information on the company'.
Detailed Rationale
Despite repeated attempts to engage with the management, CRISIL
failed to receive any information on either the financial
performance or strategic intent of STPL, and this restricts
CRISIL's ability to take a forward looking view on the credit
quality. CRISIL believes information available on STPL is
consistent with 'Scenario 1' outlined in the 'Framework for
Assessing Consistency of Information with CRISIL BB' rating
category or lower'.
STPL was set up in 2012, by the promoters, Mr Bharat Dhirajlal
Sarsavadiya, Mr Manojkumar Govindbhai Patel and Mr Jainendra
Kapoorchand Malesha. The company manufactures digitally printed
wall tiles.
VILTANS POLYPLAST: CRISIL Lowers Rating on INR4.5cr Loan to B-
--------------------------------------------------------------
Due to inadequate information and in line with the Securities and
Exchange Board of India guidelines, CRISIL had migrated its ratings
on the bank facilities of Viltans Polyplast (VP) to 'CRISIL
B-/Stable/CRISIL A4 Issuer not cooperating'. However, the firm has
now shared the requisite information for a comprehensive review of
the ratings. Consequently, CRISIL has downgraded the ratings to
'CRISIL D/CRISIL D' and simultaneously revised the ratings to
'CRISIL B-/Stable/CRISIL A4' from 'CRISIL B-/Stable/CRISIL A4
Issuer Not Cooperating'.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Cash Credit 4.5 CRISIL B-/Stable (Revised
from 'CRISIL B-/Stable
ISSUER NOT COOPERATING'
to 'CRISIL D' and
simultaneously Revised to
'CRISIL B-/Stable')
Letter of Credit 3.0 CRISIL A4 (Revised from
'CRISIL A4 ISSUER NOT
COOPERATING'* to 'CRISIL D'
and Simultaneously Revised
to 'CRISIL A4')
The rating migration to 'CRISIL D/CRISIL D' takes into account the
devolvement in the firm's letter of credit facility and overdue in
the account from October 2018 to June 2019. The simultaneous rating
upgrade reflects sufficient track record of financial discipline
maintained by VP since then.
The ratings reflect VP's below-average financial risk profile,
small scale of operations, and large working capital requirement.
These weaknesses are partially offset by the partners' extensive
experience in the packaging industry and healthy relationships with
suppliers and customers.
Key Rating Drivers & Detailed Description
Weakness:
* Below-average financial risk profile: Financial risk profile is
constrained by small networth and high gearing of INR2.12 crore and
4.59 times, respectively, as on March 31, 2019. Debt protection
metrics were average, as indicated by interest coverage of 1.40
times in fiscal 2019.
* Small scale of operations and large working capital requirement:
Intense competition continues to constrain scalability, as
indicated by modest revenue of INR10.34 crore in fiscal 2019.
Moreover, operations are working capital intensive, as reflected in
sizeable gross current assets and inventory of 370 and 325 days,
respectively, as on March 31, 2019.
Strength:
* Partners' extensive experience and healthy relationships with
suppliers and customers: The partners' experience of two decades
in the packaging industry, and healthy relationships with industry
stakeholders, continue to lend stability to raw material supply and
inflow of orders, thus supporting the business risk profile. The
partners help gauge market opportunities, grow the marketing
network, and maintain healthy revenue growth.
Liquidity Poor
Liquidity is poor, constrained by low cash accrual and fully
utilized bank limits. Cash accrual is expected at INR64 lakh
annually and will be just sufficient to meet yearly debt obligation
of INR57 lakh over the medium term. Bank limits were fully utilized
to meet increasing working capital requirement. Liquidity is
partially supported by funding support from the partners in the
form of unsecured loans. Need-based funding support is expected to
continue over the medium term.
Outlook: Stable
CRISIL believes VP will continue to benefit from the extensive
experience of the partners in the packaging industry.
Rating Sensitivity factors
Upward factors
* Increase in net cash accrual leading to improved liquidity
with average bank limit utilization of less than 80%.
* Healthy revenue growth and improvement in profitability.
Downward factors
* Any further stretch on working capital cycle leading to
deterioration in liquidity
* Decline in revenue or steep fall in operating profitability.
VP is a partnership firm set up by Mr Parimal Davda, Mrs Neeta
Davda, and Mr Ruchir Davda in 1977. The firm manufactures
mono/multi layer flexible packaging such as polypropylene,
low-density polythene, high-density polythene plain and printed
bags and sheets, and plastic moulded hangers. The end users include
readymade garments manufacturers/exporters, and players in the
food, fertiliser, and pharmaceutical industries.
VINPACK INDIA: CRISIL Lowers Rating on INR17cr Loan to B+
---------------------------------------------------------
CRISIL has downgraded its rating on the long-term bank facilities
of Vinpack India Private Limited (VIPL) to 'CRISIL B+/Stable' from
'CRISIL BB/Stable', and has assigned its 'CRISIL A4' rating to the
short-term facilities.
Amount
Facilities (INR Crore) Ratings
---------- ----------- -------
Overdraft 2.75 CRISIL A4 (Assigned)
Term Loan 17 CRISIL B+/Stable (Downgraded
from 'CRISIL BB/Stable')
The ratings reflect expected weakening in VIPL's business risk
profile, following the termination of its contract with sole
customer, ITC Ltd in June 2019 and the uncertainties in the
continuation of the biscuits business. Discontinuation of orders
from ITC is expected to result in lower revenues at around INR5
crore for fiscal 2020, as against INR28 crore in fiscal 2019. As a
result, the accruals are expected to decrease substantially for the
current year. As a diversification, the company is planning to
foray in wood coating business during the current fiscal, with a
project cost of INR25 crore, funded by debt of INR17 crore.
Operations from this new segment is likely to commence from fiscal
2021, and will remain susceptible to the implementation and demand
risks. Further, scaling up and stabilization of margins from this
new segment also needs to be monitored.
The ratings reflect exposure to project related risks, as
operations in the wood coating business are yet to commence and
risks pertaining to cyclicality inherent in the end-user
industries. These weaknesses are partially offset by the extensive
entrepreneurial experience of the promoters and moderate financial
risk profile.
Key Rating Drivers & Detailed Description
Weaknesses:
* Exposure to project-related risks: The wood coating business is
expected to commence operations by March 2020. A major portion of
civil work is completed, with installation of machinery scheduled
for February 2020. Thus, timely completion of the project and
subsequent ramp-up are critical for maintaining regular cash flow
and servicing of debt.
* Exposure to cyclicality inherent in the end-user industries: The
wood coating business is expected to cater to the real estate
sector. The risks and cyclicality inherent in the real estate
sector may lead to volatility in saleability and realisations, and
hence, cash flow mismatches. The residential real estate sector has
been under pressure due to weak demand and bearish consumer
sentiment in the past few years, resulting in increase in leverage
and refinancing needs.
Strengths:
* Extensive entrepreneurial experience of the promoters: Benefits
derived from the promoters' experience of over a decade, their
strong understanding of local market dynamics, business network,
and their timely, need-based funding support should continue to aid
the business.
* Moderate financial risk profile: Financial risk profile is marked
by a moderate capital structure and debt protection metrics.
Networth and total outside liabilities to tangible networth
(TOLTNW) ratio have been around INR16 crore and 0.30 time over the
three fiscals ended March 31, 2019. Despite debt funded capital
expenditure, the capital structure and debt protection metrics to
remain moderate over the medium term.
Liquidity Stretched
Liquidity is expected to be stretched with the operations from the
new business segment commencing only from March 2020 and ramp-up
dependent on steady demand. Nevertheless, the repayments are
expected to commence from December 2020, providing sufficient time
for increasing capacity utilization and thereby improving cash
flows. The sanctioned working capital limit of INR2.75 crore, is
expected to be utilized for scaling up of its wood coating
business.
Outlook: Stable
CRISIL believe VIPL will continue to benefit from the moderate
financial risk profile.
Rating Sensitivity factors:
Upward Factors:
* Timely completion of project.
* Stabilisation of operations and significant growth in revenue
(by 25%)
Downward Factors:
* Delay in completion of project
* Lower-than-expected cash accrual (by 25%)
VIPL, incorporated in 1998, was earlier engaged in undertaking
contract manufacturing of biscuits (for ITC Ltd.) and currently
plans to foray into the wood coating business. The company has its
facility in Bengaluru.
=================
I N D O N E S I A
=================
BPJS KESEHATAN: No More Funds Available to Cover Deficit
--------------------------------------------------------
The Jakarta Post reports that the Indonesian government plans to no
longer provide cash injections to cover the Healthcare and Social
Security Agency's (BPJS Kesehatan) deficit this year following a
hike in the insurance premiums.
"We are sure that BPJS Kesehatan would not need additional funds in
2020 following a hike in the insurance premiums. BPJS has also
promised to keep their finances in check," the Jakarta Post quotes
Finance Minister Sri Mulyani Indrawati as saying during a press
briefing on the 2019 state budget in Jakarta on Jan. 7.
The Jakarta Post says the year 2020 marks a new phase for
Indonesia's universal healthcare program, National Health Insurance
(JKN), as the government raised its premiums for the first time
since it started operations in 2014.
Beginning in January, the government raised the premiums for
first-class service by 100% to IDR160,000 (US$11.40) per month per
person, while more than doubling the cost for the second-class
service from IDR51,000 to IDR110,000. The government also hiked the
premiums for the third-class service by 64% from 25,500 per person
per month to IDR42,000.
According to the report, BPJS Kesehatan has suffered a huge
financial deficit since its establishment as its premium income was
far from enough to pay for insurance claims.
BPJS Watch estimates that the increase in the premiums is expected
to reduce its deficit to IDR18 trillion from the initial estimate
of IDR32.89 trillion at the end of 2019, the report relays.
Speaking during the same briefing, the Finance Ministry's budgeting
director-general, Askolani, told reporters that the government
would still allocate IDR20 trillion to subsidize the premium
payments of low-income participants, the Jakarta Post adds.
=================
S I N G A P O R E
=================
KOON HOLDINGS: To Hold Creditors' Scheme Meetings on Feb. 25
------------------------------------------------------------
Fiona Lam at The Business Times reports that Koon Holdings and its
subsidiary Koon Construction & Transport (KCT) will convene
meetings next month for their schemes of arrangement as part of the
group's debt restructuring exercise.
BT relates that creditors will vote on the proposed schemes of Koon
Holdings and KCT at 2:00 p.m. and 4:00 p.m. respectively on Feb.
25, the group announced on Jan. 7.
This comes after the Singapore High Court on Jan. 3 approved the
applications by both companies to convene the meetings, the report
notes.
Meanwhile, Koon Holdings and KCT will also get two more months of
court protection. The High Court extended their debt moratoria till
April 30, from the initial Feb. 28 deadline, BT discloses.
In October, the duo applied for the moratoria as they intended to
propose and implement schemes of arrangement.
Amid the debt restructuring, the group in December also ended a
joint venture (JV) with Japanese firm Penta-Ocean Construction
which was carrying out land preparation works for Changi Airport's
expansion, according to BT.
Koon Holdings appointed a new chief operating officer on Oct. 31 to
oversee both the construction and precast operations.
Shares of Koon Holdings have been suspended since Aug. 30, the
report notes. It requested the voluntary suspension as it was
assessing the ability of KCT to continue on a going concern basis.
Koon Holdings is an infrastructure and civil engineering service
provider specialising in reclamation and shore protection works.
KCT is the group's main operating company.
As reported in the Troubled Company Reporter-Asia Pacific Nov. 12,
2019, The Business Times said the High Court of Singapore has
granted a debt moratorium to Koon Holdings and its subsidiary Koon
Construction & Transport (KCT). It will last from Nov. 7, 2019, to
Feb. 28, 2020. In October, the two companies applied for court
protection as they intend to propose and implement a scheme of
arrangement as part of the group's restructuring exercise to
restore their financial position.
===============
T H A I L A N D
===============
THAILAND: Cabinet Approves $8.6BB of Loan to Help Smaller Firms
---------------------------------------------------------------
Reuters reports that Thailand's cabinet on Jan. 7 approved loan
measures worth THB260 billion (US$8.6 billion) to help small and
medium-size companies, affected by weak exports amid global trade
tensions and a strong currency, a finance ministry official said.
That includes soft loans worth THB195 billion and THB65 billion in
loan guarantees to be arranged by state banks, Lavaron Sangsnit,
head of the finance ministry's fiscal policy office, told a
briefing, Reuters relays.
The government also offers tax breaks and fee reductions to help
SMEs in debt restructuring, he said.
Thailand, Southeast Asia's second-largest economy, relies on
exports, which have been hit by the U.S.-Sino trade war, the report
says. Strength in the baht, which rose nearly 9% against the U.S.
dollar in 2019, has added to the pressure.
Earlier on Jan. 7, a Thai shipping association said exports might
contract 5% this year if the baht gained more than forecast against
the U.S. dollar, Reuters adds.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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Editors.
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