/raid1/www/Hosts/bankrupt/TCRAP_Public/200514.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, May 14, 2020, Vol. 23, No. 97
Headlines
A U S T R A L I A
DIGITAL INCUBATOR: First Creditors' Meeting Set for May 21
ELITE MINING: First Creditors' Meeting Set for May 21
EMPLOYMENT ACTIVE: Second Creditors' Meeting Set for May 20
EXPO DIRECT: Second Creditors' Meeting Set for May 15
FALCON RISING: Second Creditors' Meeting Set for May 19
FINETEA PTY: First Creditors' Meeting Set for May 20
QUALITAS CONSORTIUM: Second Creditors' Meeting Set for May 20
RABCO PLANT: First Creditors' Meeting Set for May 22
SEVEN WEST: Gets AUD75MM Lifeline From Perth Real Estate Giant
SOUTHSTAR HOMES: Second Creditors' Meeting Set for May 21
SUPERIOR SCAFFOLDS: Second Creditors' Meeting Set for May 22
VIRGIN AUSTRALIA: To Keep International Flights Under Plan
[*] AUSTRALIA: Biotechs on the Brink as Sector Faces More Layoffs
C H I N A
CIFI HOLDINGS: Fitch Affirms BB LongTerm IDRs, Outlook Stable
HONGKUN WEIYE: Fitch Alters Outlook on 'B' LT IDR to Stable
LUCKIN COFFEE: Fires Top Executives After Accounting Scandal
MIE HOLDINGS: Defaults on Dollar Note Amid Oil Crash
TAHOE GROUP: Fitch Cuts LT IDR & Senior Unsec. Rating to CCC+
TAHOE GROUP: Under Fire Amid Doubts Over Project Completion
YIHUA ENTERPRISE: S&P Cuts ICR to 'SD' on Missed Interest Payment
H O N G K O N G
CATHAY PACIFIC: Egan-Jones Lowers Senior Unsecured Ratings to B-
I N D I A
AGRI VENTURE: CARE Keeps D on INR5.9cr Loans in Not Cooperating
AKANSHA FASHIONS: CARE Lowers Rating on INR7.50cr Loan to 'B'
ANN PRODUCTS: CARE Lowers Rating on INR9.75cr Loan to B-
ARPEE ENERGY: Ind-Ra Lowers LT Issuer Rating to B+, Outlook Stable
AVIGHNA DAIRY: CARE Keeps D Debt Ratings in Not Cooperating
GIRIRAJ EXIM: CARE Lowers Ratings on INR70cr Loan to B+/A4
GN POULTRY: CARE Lowers Rating on INR6cr Loan to B-
HANUMAN COTTON: CARE Keeps D on INR8cr Loans in Not Cooperating
HPCL-MITTAL ENERGY: Fitch Alters Outlook on 'BB' LT IDR to Negative
INDIA DYE: CARE Lowers Rating on INR12cr LT Loan to B+
JAGDAMBA FIBRES: Ind-Ra Moves B+ Issuer Rating to Non-Cooperating
JAGJIT ENTERPRISES: CARE Keeps B on INR13cr Debt in Not Cooperating
K. MAGANLAL: Ind-Ra Lowers LT Issuer Rating to BB-, Outlook Stable
K.J.M. RICE: CARE Assigns B+ Rating to INR8.05cr LT Loan
KUNWAR DEVENDRA: CARE Lowers Rating on INR10.25cr Loan to B-
LMJ LOGISTICS: Ind-Ra Lowers LongTerm Issuer Rating to 'BB+'
MDH TRUCKS: CARE Keeps C Rating on IN10cr Loans in Not Cooperating
MEGHAAARIKA IMPEX: CARE Lowers Rating on INR15cr Loan to 'B'
MITRA GUHA: CARE Lowers Rating on INR2.50cr LT Loan to B+
MODI PROJECTS: Ind-Ra Moves BB- Issuer Rating to Non-Cooperating
MSRM ORGANICS: CARE Lowers Rating on INR7.50cr Loan to B-
NAINITAL MOTORS: Ind-Ra Lowers Issuer Rating to BB, Outlook Stable
OASIS EDUCATIONAL: CARE Lowers Rating on INR5cr Loan to B+
R. H. INTERNATIONAL: CARE Cuts Rating on INR1.0cr Loan to B-
SHIVANSHU SINTERED: CARE Lowers Rating on INR14cr Loan to 'B'
SINGH ENTERPRISES: Ind-Ra Moves 'BB-' LT Rating to Non-Cooperating
SONA TRADERS: CARE Lowers Rating on INR12cr LT Loan to 'B'
SVASCA INDUSTRIES: CARE Lowers Rating on INR12cr LT Loan to B
TOKAI ENGINEERING: CARE Cuts Rating on INR7cr LT Loan to 'C'
VIRENDRA KUMAR: Ind-Ra Moves BB- Issuer Rating to Non-Cooperating
WORLDWIDE TRADELINKS: Ind-Ra Moves B+ LT Rating to Non-Cooperating
I N D O N E S I A
ABM INVESTAMA: Fitch Affirms B+ Issuer Default Rating, Outlook Neg.
J A P A N
MAZDA MOTOR: Seeks JPY300 Billion in Financing From Banks
UNIVERSAL ENTERTAINMENT: Fitch Lowers LT IDR to B, Outlook Negative
M O N G O L I A
MONGOLIA: Moody's Alters Outlook on B3 Issuer Rating to Negative
MONGOLIAN MORTGAGE: Moody's Alters Outlook on B3 Ratings to Neg.
N E W Z E A L A N D
VBASE: Plan to Shed 60% of Staff Amid Covid-19 Downturn
P H I L I P P I N E S
CEBU AIR: Egan-Jones Lowers Senior Unsecured Ratings to B
- - - - -
=================
A U S T R A L I A
=================
DIGITAL INCUBATOR: First Creditors' Meeting Set for May 21
----------------------------------------------------------
A first meeting of the creditors in the proceedings of The Digital
Incubator Pty Ltd will be held on May 21, 2020, at 11:00 a.m. at
the offices of Jirsch Sutherland, Level 27, 259 George Street, in
Sydney, NSW.
Daniel Jean Civil of Jirsch Sutherland was appointed as
administrator of Digital Incubator on
May 11, 2020.
ELITE MINING: First Creditors' Meeting Set for May 21
-----------------------------------------------------
A first meeting of the creditors in the proceedings of Elite Mining
and Transport Services Pty Ltd will be held on May 21, 2020, at
10:30 a.m. via teleconference only.
Greg Mathew Prout and David Ashley Norman Hurt of WA Insolvency
Solutions, a division of Jirsch Sutherland, were appointed as
administrators of Elite Mining on May 11, 2020.
EMPLOYMENT ACTIVE: Second Creditors' Meeting Set for May 20
-----------------------------------------------------------
A second meeting of creditors in the proceedings of Employment
Active Pty Ltd, trading as iSelect Energy, has been set for May 20,
2020, at 10:30 a.m. via teleconference.
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 May 19, 2020, at 5:00 p.m.
Christopher Richard Cook of Worrells Solvency & Forensic
Accountants were appointed as administrators of Employment Active
on April 15, 2020.
EXPO DIRECT: Second Creditors' Meeting Set for May 15
-----------------------------------------------------
A second meeting of creditors in the proceedings of Expo Direct Pty
Ltd has been set for May 15, 2020, at 11:00 a.m. via
teleconference.
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 May 14, 2020, at 3:00 p.m.
Andrew Schwarz and Matt Adams of AS Advisory were appointed as
administrators of Expo Direct on April 1, 2020.
FALCON RISING: Second Creditors' Meeting Set for May 19
-------------------------------------------------------
A second meeting of creditors in the proceedings of:
-- Falcon Rising Pty. Ltd.
-- MTERCC Pty Ltd
-- Peregrine Coffee And Co Pty. Ltd.
-- Sustainable Coffee Pty Ltd
has been set for May 19, 2020, at 11:00 a.m. via teleconference.
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 May 18, 2020, at 4:00 p.m.
John Maxwell Morgan of BCR Advisory was appointed as administrator
of Falcon Rising on April 2, 2020.
FINETEA PTY: First Creditors' Meeting Set for May 20
----------------------------------------------------
A first meeting of the creditors in the proceedings of Finetea Pty
Ltd, trading as Hopetoun Tea Rooms, will be held on May 20, 2020,
at 11:00 a.m. via telephone facilities.
Peter Gountzos and Michael Carrafa of SV Partners were appointed as
administrators of Finetea Pty on May 8, 2020.
QUALITAS CONSORTIUM: Second Creditors' Meeting Set for May 20
-------------------------------------------------------------
A second meeting of creditors in the proceedings of Qualitas
Consortium Pty Ltd has been set for May 20, 2020, at 10:00 a.m. via
virtual meeting.
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 May 19, 2020, at 4:00 p.m.
David Coyne of BRI Ferrier was appointed as administrator of
Qualitas Consortium on April 15, 2020.
RABCO PLANT: First Creditors' Meeting Set for May 22
----------------------------------------------------
A first meeting of the creditors in the proceedings of Rabco Plant
Hire Pty Ltd will be held on May 22, 2020, at 11:00 a.m. via Zoom
meeting.
Zoom Meeting Details:
Meeting ID: 978 9643 0499
Meeting Password: 185171
Meeting URL:
https://zoom.us/j/97896430499?pwd=QmJ0MzlUL2ZHek5BdHhPaEVVdnc4dz09
Nick Combis of Vincents Chartered Accountants was appointed as
administrator of Rabco Plant on
May 12, 2020.
SEVEN WEST: Gets AUD75MM Lifeline From Perth Real Estate Giant
--------------------------------------------------------------
Hamish Hastie at The Sydney Morning Herald reports that debt-laden
Seven West Media has been thrown a AUD75 million lifeline with the
media conglomerate confirming WA property outfit Primewest will buy
the company's Perth headquarters.
In a market announcement on May 13, Seven West said Channel 7, The
West Australian newspaper and The Sunday Times newspaper would
remain as the major tenants of the Osborne Park property 5
kilometres north of the Perth CBD under a 15-year lease, SMH
relates.
According to SMH, Primewest said annual rent was set at AUD4.3
million with 3 per cent per annum rent reviews.
SMH relates that the deal was first flagged publicly late last
month, with the Kerry Stokes-controlled media company pursuing
several asset sales to pay down a debt pile that had reached AUD541
million, even before COVID-19 started destroying ad revenue.
Over three decades, Kerry Stokes has demonstrated mastery in
restructuring his corporate empire - now the 79-year-old has to do
it all over again, the report says.
SMH notes that the money from the sale was expected to join the
AUD40 million raised from the recent sale of its Pacific Magazines
arm to shrink the company's debt.
In March, the company withdrew its revenue guidance for 2020 and
told Seven staff they were to work four-day weeks and take a 20 per
cent pay cut until the end of the year.
According to SMH, Primewest executive chairman John Bond described
the purchase as an "exceptional counter-cyclical investment
opportunity". Mr Bond, son of late-business tycoon Alan Bond, said
the purchase gave Primewest strong cash flow and an opportunity to
create "Perth's second CBD" in the area next to Herdsman Lake over
the long term.
"We believe the Herdsman Glendalough area, together with the
Stirling City Centre, will form Perth's second CBD with a vibrant
urbanism that embraces mixed-use development, dense built form,
high-frequency public transport and quality public spaces for the
enjoyment of residents and employees," the report quotes Mr. Bond
as saying. "The Seven West location is the landmark, gateway site
in the new precinct and will be developed over a relatively long
time frame."
SMH relates that Mr. Bond said Primewest would also work with Seven
West to find opportunities in the short and medium-term.
He said if the draft Herdsman Glendalough Structure Plan currently
being considered by the City of Stirling was approved it would be a
game-changer for the property by opening up significant
opportunities for mixed-use and commercial development, the report
relays.
Primewest has an extensive portfolio of office buildings across
Australia, including iconic Perth CBD buildings Exchange Tower and
1 Forrest Place. It also owns the Channel 9 building in Perth's
CBD, which houses the station's control centre and news operation,
as well as the Nine publishing arm that owns this masthead.
SOUTHSTAR HOMES: Second Creditors' Meeting Set for May 21
---------------------------------------------------------
A second meeting of creditors in the proceedings of Southstar Homes
Pty Ltd has been set for May 21, 2020, at 11:00 a.m. via
teleconference.
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 May 19, 2020, at 5:00 p.m.
Andrew Schwarz and Jon Howarth of AS Advisory were appointed as
administrators of Southstar Homes on April 7, 2020.
SUPERIOR SCAFFOLDS: Second Creditors' Meeting Set for May 22
------------------------------------------------------------
A second meeting of creditors in the proceedings of Superior
Scaffolds Illawarra Pty Ltd has been set for May 22, 2020, at 11:00
a.m. at SM Solvency Accountants, Level 10/144 Edward 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 May 21, 2020, at 4:00 p.m.
Brendan Nixon of SM Solvency Accountants was appointed as
administrator of Superior Scaffolds on April 17, 2020.
VIRGIN AUSTRALIA: To Keep International Flights Under Plan
----------------------------------------------------------
Kylar Loussikian at The Sydney Morning Herald reports that Virgin
Australia would continue to operate an international network flying
to Los Angeles and Tokyo under a confidential management plan put
to prospective buyers ahead of a Friday [May 15] deadline for
preliminary bids for the airline.
Two sources close to negotiations, who spoke to The Sydney Morning
Herald and The Age on condition of anonymity given the strict
non-disclosure agreement signed by those involved, said a
resurrected Virgin would also fly to New Zealand, Bali and Fiji
under the plan put to interested parties by the airline's
management.
The Herald says the plan is contained in an information memorandum
distributed to key bidders by the airline's administrators,
Deloitte, on May 11. According to the report, Virgin's
administrators have told potential buyers the airline could more
than triple annual earnings - to AUD1.2 billion - in the 2022
financial year, the first following the coronavirus outbreak. The
Australian Financial Review last week reported bidders had been
told to expect revenues of AUD5 billion in that year.
But Virgin's plans for an international flight network will be at
odds with the interests of some interested buyers who want the
airline to return to its roots as a low-cost domestic carrier, the
Herald relays. Under former chief executive John Borghetti, Virgin
expanded to become a full-service airline as it tried to take on
rival Qantas. The airline's current chief, Paul Scurrah, had moved
to cut costs before calling in administrators on April 20.
Most recently, one of India's largest airlines - low-cost carrier
IndiGo - has put together a proposal which, if successful, would
turn Virgin into a budget operation once again. Other interested
parties include mining magnate Andrew Forrest and international
outfits Bain Capital, Oaktree Capital Management and Brookfield.
Those sources close to discussions told the Herald and the Age the
annual AUD1.2 billion earnings figure forecast by Deloitte is
reliant on Virgin remaining a full-service airline. Pulling out of
international routes would also mean forfeiting hard-to-secure and
valuable gate slots at major airports, they said. Virgin had only
recently secured a slot at Tokyo's Haneda Airport before the
pandemic shuttered international travel.
The airline's routes to Hong Kong, however, appear unlikely to
return, the Herald adds.
A Virgin spokeswoman declined to comment on May 12. But minutes of
Virgin's first creditors' meeting, held on April 30, show Deloitte
partner Vaughan Strawbridge told the airline's creditors he wanted
to "avoid breaking up and selling parts of the business". "The best
outcome for everyone is the preservation of the whole business," he
said, according to a copy of the minutes lodged with the corporate
regulator on May 11, the Herald relays.
"The chairperson advised that the administrators' discussions with
government will remain important in the coming weeks and noted the
state and federal governments' various public statements in recent
days," the minutes, as cited by the Herald, read. "Key to those
discussions will be the important contribution Virgin Australia
makes at a state and national level, not only through jobs but also
through competitive domestic airline services, connections to
overseas destinations and helping to support passenger growth in
regions and regional tourism sectors."
The Herald says the federal government has recently used Qantas and
Virgin to fly Australians stranded overseas due to the coronavirus
pandemic, underwriting any loss for the airlines in flying empty
planes to four key destinations and paying for any shortfall if
airfares did not cover the cost of the returning flights.
Deloitte is being advised by investment banks Morgan Stanley and
Houlihan Lokey during the sale process, the report notes.
About Virgin Australia
Brisbane, Queensland-based Virgin Australia is Australia's
second-largest airline. It commenced services in 2000 as Virgin
Blue, wholly owned by the Virgin Group.
As reported in the Troubled Company Reporter-Asia Pacific on April
22, 2020, Bloomberg News related that Virgin Australia Holdings
Ltd. became Asia's first airline to fall to the coronavirus after
the outbreak deprived the debt-burdened company of almost all
income. Administrators at Deloitte, who have taken control of the
Brisbane-based carrier, aim to restructure the business and find
new owners within months. More than 10 parties have expressed an
interest, Deloitte related on April 21.
According to Bloomberg, Virgin Australia, which has furloughed 80%
of its 10,000 workers, will continue to operate some flights for
essential workers, freight and the repatriation of Australians. The
airline's frequent flyer program is a separate company and is not
in administration.
Richard John Hughes, John Greig, Vaughan Strawbridge and Sal Algeri
of Deloitte were appointed as administrators of Virgin Australia,
et al., on April 20, 2020.
On April 29, 2020, the company and certain affiliates filed
petitions pursuant to Chapter 15 of the Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York.
[*] AUSTRALIA: Biotechs on the Brink as Sector Faces More Layoffs
-----------------------------------------------------------------
Emma Koehn at The Sydney Morning Herald reports that the boss of
Australia's largest life sciences investor has called for urgent
policy action to ensure billions of dollars continue to flow into
cash-strapped biotech businesses at risk of shutting their doors.
"There's a crop of fabulous, promising biotechs all five to 10
years old and they're at risk of being lost," the Herald quotes
chief executive of the Medical Research Commercialisation Fund Dr
Chris Nave as saying.
The Herald says Dr. Nave, who has previously warned Australian
medical research businesses will hurt in the face of coronavirus,
is now calling for a national blueprint to address a shortage of
private capital.
This includes scrapping the planned caps to the research and
development tax incentive that would otherwise strip at least
AUD1.35 billion from the rebates system and also fast-tracking this
year's payment claims, the report relates.
The government's research and development tax incentive changes are
still being reviewed by a senate committee.
His suggestions also include extending JobKeeper to biotech
companies that aren't generating revenue and freeing up some of the
government's AUD20 billion Medical Research Future Fund to
encourage more commercialisation of research by early stage
companies, according to the Herald.
"If we're at risk of losing a generation of startups, it [the fund]
could play a role while weathering the crisis," Dr. Dave, as cited
by the Herald, said.
According to the Herald, the Medical Research Commercialisation
Fund, which is managed by Dr Nave's Brandon Capital and chaired by
Bill Ferris, hit the AUD700 million mark last year when it launched
its fifth investment fund.
The fund, which invests cash from super funds and biotech giants,
including CSL, also counts the Australian government among its
partners.
The Herald relates that Dr. Nave warned the life sciences sector
would face more layoffs and shutdowns this year unless more support
was thrown its way.
Early stage companies in the space are largely blocked from
JobKeeper payments, either because they have staff on short-term
contracts or they are not yet revenue generating and can't easily
show the ATO their losses.
They also face a period where investor appetite for long term
projects like medical research is weakened, Dr. Nave said.
"I think it's going to be very hard in the near term — there
won't be an increase of offshore investors," he said.
The triple forces of Covid-19, a slowdown in capital markets and
tougher FIRB requirements will mean startups cannot rely on
investment coming from overseas and will only be able to find help
onshore, he said, the Herald relays.
Dr. Nave's calls for a national plan come as other startup
heavyweights warn a national plan is needed to reboot the startup
ecosystem.
The Herald adds that VC fund managers have said there must be
policies to encourage local players to invest locally.
The Medical Research Future Fund has announced a variety of funding
measures over the past month including AUD2.5 million to develop
faster COVID-19 tests. However, the fund has told applicants via
its website it has delayed some grant assessments due to the
pandemic.
=========
C H I N A
=========
CIFI HOLDINGS: Fitch Affirms BB LongTerm IDRs, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed China-based property developer CIFI
Holdings Co. Ltd.'s Long-Term Foreign- and Local-Currency Issuer
Default Ratings at 'BB'. The Outlook is Stable.
The rating affirmation reflects CIFI's stable financial profile as
it continues its nationwide expansion. CIFI's leverage, measured by
net debt/adjusted inventory after proportionately consolidating
joint ventures, declined to 44% by end-2019 from 48% at end-2018,
and Fitch expects leverage to remain at around 45% mainly due to
pressure on the company to restock its land bank. CIFI's large
exposure to JVs and reliance on non-controlling interests' capital
contribution also complicate the leverage outlook. The two factors
constrain CIFI at the current rating. Fitch also no longer
considers JV management fee as non-development property revenue
because the fees are generated as part of the DP operations.
KEY RATING DRIVERS
Stable Leverage, Limited Headroom: CIFI's leverage drop to 44.3% in
2019 from 48% in 2018 was helped by strong sales cash collection,
lower leverage on the JV level, increase in trade and
project-related payables, and continued capital contribution from
non-controlling interests. Fitch believes CIFI's leverage will
remain at around 45% due to disciplined financial management but
the headroom to deleverage will be limited due to continued land
replenishment and high reliance on capital from non-controlling
interests, whereas homebuilders with fewer of these interests can
dispose of stakes in projects to reduce leverage.
Land Replenishment Pressure: CIFI spent 57% of total cash revenue
from sales proceeds and the non-DP segment, or CNY55 billion, on
land acquisitions in 2019, compared with 68% in 2018. CIFI had an
attributable land bank of 26.5 million sq m at end-2019, and Fitch
estimates that the available-for-sale portion is around 20.5
million sq m, equivalent to less than three years of sales, in
light of CIFI's aim to increase sales by 15% in 2020. Management
budgeted around 50% of total cash revenue, or CNY57 billion, for
land acquisitions in 2020.
However, Fitch thinks that a company of CIFI's size would usually
have land bank enough for three years of sales to be resilient in
business cycles. Fitch believes that land bank pressure will
continue to be one of the key risks for CIFI to sustain growth
momentum.
Large Scale, Rising Sales: CIFI's total sales rose by 32% to CNY201
billion in 2019, while the average selling price (ASP) increased by
5% to CNY16,700/sq m after falling by 4% in 2018. CIFI's
attributable sales, which accounted for 50% of total sales, rose by
32% to CNY100 billion in 2019, according to management. CIFI aims
to achieve 55% and 60% gains in attributable sales in the next two
years to increase profit attributable to shareholders. It aims to
achieve CNY230 billion in total sales, a 15% increase, with CNY380
billion of saleable resources in 2020.
Margin to be Maintained: CIFI's EBITDA margin after adding back
capitalised interest increased slightly to 23.8% in 2019 from 21.6%
in 2018. The EBITDA margin after adjusting for acquisition
revaluation was higher at 29% in 2019 and 31% in 2018. The
acquisition revaluations are likely to continue and margins appear
more volatile, as M&A is an important channel for CIFI's land
acquisition plans. Nevertheless, 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.
DERIVATION SUMMARY
CIFI's attributable sales of CNY100 billion in 2019 are higher than
that of Sino-Ocean Group Holding Limited (BBB-/Stable, Standalone
Credit Profile: bb+) as well as that of most peers rated 'BB-' such
as KWG Group Holdings Limited (BB-/Stable), Times China Holdings
Limited (BB-/Stable) and Yuzhou Properties Company Limited
(BB-/Stable).
Sino-Ocean continued its geographical focus on Tier 1 and affluent
Tier 2 cities, while CIFI increased its focus on Tier 2 and 3
cities in 2018-2019. CIFI's leverage of around 44% at end-2019 is
higher than Sino-Ocean's 40%. Sino-Ocean also has recurring EBITDA
interest coverage from quality investment properties, which was at
0.4x in 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 nationwide presence.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Attributable contracted sales flat at CNY100 billion in
2020-2021.
- Attributable land purchases and construction cash costs at
around 60% and 25% of contracted sales proceeds in 2020-2021,
respectively
- Property development revenue gross profit margin (excluding
capitalised interests) at 25%-28% in 2020-2021.
- JV management fee and rental revenue to increase to CNY5
billion in 2020 and CNY5.5 billion in 2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Leverage, measured by net debt/adjusted inventory including JV
proportionate consolidation, sustained at below 35%
- Maintaining high cash flow turnover despite the JV business
model and consolidated contracted sales/debt at over 1.2x
- Land bank sufficient for three years of sales
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Substantial decrease in contracted sales
- Net debt/adjusted inventory including JV proportionate
consolidation sustained above 45%
- EBITDA margin (excluding acquisition revaluation gain)
sustained at below 25%
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Ample Liquidity, Low Funding Cost: CIFI had unrestricted cash of
CNY45 billion at end-2019, enough to cover short-term debt of CNY21
billion. CIFI's average funding cost remained stable at 6% in 2019
(2018: 5.8%), and should stay low due to its diversified onshore
and offshore funding channels, as well as its active
capital-structure management.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
HONGKUN WEIYE: Fitch Alters Outlook on 'B' LT IDR to Stable
-----------------------------------------------------------
Fitch Ratings has revised the Outlook on China-based homebuilder
Beijing Hongkun Weiye Real Estate Development Co., Ltd.'s Long-Term
Foreign-Currency Issuer Default Rating to Stable from Negative, and
affirmed the IDR at 'B'. The agency also affirmed Hongkun's and
subsidiary HongKong Ideal Investment Limited's 'B' senior unsecured
ratings, with Recovery Ratings of 'RR4'.
The revision to its Outlook reflects the improvement in the
company's cash/short-term debt ratio to 117% by end-2019, from 49%
at end-2018. Hongkun's leverage - measured by net debt/adjusted
inventory - fell to 54% by end-2019, from 62% at end-2018.
Hongkun's ratings are constrained by its smaller scale and short
land-bank life
Hongkun's profitability is healthy and Fitch expects the EBITDA
margin to remain above 30% in 2020-2022 (2019: 31%). Continued
improvement in cash collection in 2019 should support its ability
to generate the required contracted sales to achieve a better
liquidity position.
KEY RATING DRIVERS
Moderate Liquidity: Hongkun has improved its debt-maturity profile
and enhanced its cash/short-term debt ratio. Hongkun at end-2019
had CNY3.8 billion of debt maturing in the next 12 months. The cash
position of CNY4.5 billion is sufficient to cover the maturing
debt. The company's cash/short-term debt ratio improved
significantly to 117% in 2019, compared with 49% in 2018. The
company's refinancing plan involved improving cash collection from
contracted sales and getting new investors for its reissued
corporate bonds, and drawdowns of new loans from banks.
Improved Cash Collection Lowers Leverage: Hongkun's leverage -
measured by net debt/adjusted inventory - fell to 54% by end-2019,
from 62% at end-2018, as a result of improved cash collection. The
company reduced cash outflow and used only 9% of its contracted
sales to buy land in 2019. Hongkun says it plans to normalise land
replenishment in 2020 and budgets to spend around 20% of contracted
sales on land acquisitions this year. Fitch forecasts Hongkun's
leverage to continue to be below 55% in 2020 with improved cash
collection, disciplined land acquisitions and limited growth in
contracted sales.
Geographical Limitations of Land Bank: Hongkun's rating is
constrained by its limited regional diversification, which exposes
the company to the stringent and tight home-purchase restrictions
across the Beijing region. Hongkun started buying land in cities in
the Bohai Rim, namely Beijing, Tianjin and Hebei, from 2012 and has
established a strong record and customer relationships in the local
market. As a result, 81% of its 2019 contracted sales were from
that area. The rest were from other regions, including southern
China (Hainan), Guangdong (Foshan) and central China (Anhui,
Hubei). Fitch expects a similar geographical spread in the next two
years, based on its land-bank distribution.
Scale Smaller than Peers: Hongkun's rating is also constrained by
its contracted-sales scale. Its 2019 attributable contracted sales
rose by 3% yoy to CNY13.8 billion, which is smaller than that of
some of its 'B' rated peers. Fitch expects Hongkun's 2020
contracted sales to decrease by 6% as Hongkun's contracted sales
growth in 2020 may be constrained by the coronavirus epidemic.
Healthy Margin, Quality Land Bank: Fitch expects Hongkun to
maintain its EBITDA margin above 30% in 2020-2021 (2019: 31%),
which will support its ability to generate contracted sales to
improve its liquidity position. Bohai Rim accounted for a majority
Hongkun's land bank. The average land cost of its land reserves was
low at CNY1,537 per sq m at end-2019, or 12% of its average selling
price. The company has been prudent in expanding contracted sales
and land acquisition, and added extra land reserves at a lower cost
in 2019.
Weaker Oversight: Hongkun is not a listed company, and Fitch
believes limited regulatory oversight and only one independent
director on its board weaken creditor protection. The only
regulatory oversight is through the two Chinese stock exchanges,
where Hongkun's domestic bonds are traded, and the Hong Kong
Exchanges and Clearing where the US dollar bonds are traded.
Creditors are mainly protected by the terms governing Hongkun's
borrowings, including the covenants, with the continued issuance of
domestic or offshore bonds being the source of financial reports
for investors.
Hongkun Group, which owns Hongkun, does not have any material
investment other than in Hongkun. However, Hongkun's ratings may
come under pressure if it is required to support its parent's other
investments. Fitch believes corporate governance does not constrain
the ratings on Hongkun, but any material weakening of the strength
of its debt covenants or any gaps in its corporate governance could
place constraints on its rating.
ESG - Financial Transparency and Governance: Hongkun has an ESG
Relevance Score of 4 for Financial Transparency and Governance, as
it is not a listed company and full financial information is not
widely available, although bondholders of its US dollar and
domestic bonds receive full financial information. Hongkun's has
appointed one independent director on the board and ownership is
concentrated. These factors constrain the rating.
DERIVATION SUMMARY
Hongkun's business profile is similar to that of 'B' category
peers. Hongkun's land quality is stronger than most of the peers
rated 'B-', but the limited geographical diversification of the
land constrains its rating.
Its 2019 contracted ASP of CNY13,657/sq m was at the mid-range of
peers rated 'B', and attributable contracted sales of CNY13.8
billion were at the lower-end. Sales churn, indicated by
attributable contracted sales/total debt of 0.8x, is in at the
mid-range. Hongkun's 2019 EBITDA margin of 31% is high among 'B'
rated peers as its low land cost supports its margin. Its 2019
leverage ratio of 53.7% is at the high-end of that of 'B' rated
peers, but Fitch believes Hongkun's leverage will remain below 55%
in 2020.
Hongkun has stronger profitability compared with Redco Properties
Group Ltd (B/Stable). Redco has larger scale than Hongkun with
attributable sales of CNY 14 billion. Hongkun's 2019 leverage was
higher than Redco. Both Hongkun and Redco have similar liquidity
profiles, illustrated by their cash/short-term debt ratio of 1.2x.
Hongkun has a higher EBITDA margin than 'B-' peers, such as Xinyuan
Real Estate Co., Ltd (B-/Stable). Fitch estimates Xinyuan's
leverage will remain around 55%, which is a similar level to
Hongkun's leverage. Xinyuan has slightly larger scale than Hongkun,
but Hongkun has a stronger liquidity profile compared with
Xinyuan.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Attributable contracted sales to decrease by 6% yoy in 2020 and
no growth in 2021-2022.
- EBITDA margin to stay above 30% in 2020-2022.
- Land-bank life to stay at 3.2-3.6 years in 2020-2022 (2019: 3.3
years)
- Land purchase cost at below 35% of contracted sales in
2020-2023 (2019: 8%)
- Construction cash outflow of below 40% of contracted sales in
2020-2022 (2019: 35%)
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that Hongkun would be reorganised as
liquidated in bankruptcy rather than going-concern because it is an
asset-trading company.
- Fitch has assumed a 10% administrative claim.
- The liquidation estimate reflects Fitch's view of the value of
balance-sheet assets that can be realised in sale or liquidation
processes conducted during a bankruptcy or insolvency proceeding
and distributed to creditors.
- 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.
- Advance rate of 75% applied to on its adjusted inventory, as
Hongkun has an EBITDA of above 30%.
- Property, plant and equipment advance rate at 60%.
- 70% advance rate applied to accounts receivable.
- Advance rate of 100% applied to restricted cash, which were
mainly guarantee deposits for construction and buyers' mortgages
for pre-sold properties.
Based on its calculation of adjusted liquidation value after
administrative claims, Fitch estimates the recovery rate for the
offshore senior unsecured debt to be within the 'RR4' recovery
range.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Net debt/adjusted inventory sustained below 40% (2019: 54%)
- Significant increase in scale, reflected by attributable
contracted sales exceeding CNY20 billion (2019: CNY13.8 billion)
- Strong record outside of core market
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- EBITDA margin sustained below 20% (2019 31%)
- Net debt/adjusted inventory above 55% for a sustained period
(2019: 54%)
- Cash/short-term debt ratio sustained below 1.0x
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Moderate Liquidity: Hongkun had cash and cash equivalents of CNY4.5
billion facilities as of end-2019, which is sufficient to cover the
CNY3.8 billion of debt maturing in 2020. Hongkun has no capital
instruments due in 2020 and the debts due in 2020 are property
development loans.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Hongkun has ESG Relevance Scores of 4 for Financial Transparency
and Governance Structure, as it is not a listed company and full
financial information is not widely available, although bondholders
of its US dollar and domestic bonds receive full financial
information. Hongkun's ownership is concentrated, and there is only
one independent director on the board.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of 3. This means ESG issues are
credit-neutral or have only a minimal credit impact on the
entity(ies), either due to their nature or to the way in which they
are being managed by the entity(ies).
LUCKIN COFFEE: Fires Top Executives After Accounting Scandal
------------------------------------------------------------
Caixin Global reports that Luckin Coffee Inc. removed Chief
Executive Officer Jenny Qian Zhiya and Chief Operating Officer Liu
Jian amid an ongoing probe of a massive accounting scandal. Qian
and Liu also resigned their board positions, according to a filing
on May 12 by Nasdaq-listed Luckin.
Six others involved in the scandal were either suspended or placed
on leave, the company said. Guo Jinyi, a board member and senior
vice president, was named acting CEO, Stuff relates.
The Chinese coffee chain disclosed in late April that nearly half
the revenue it reported for the last three quarters of 2019, or
CNY2.2 billion ($310 million), was fake. The company blamed COO Liu
for the misconduct and said it initiated an investigation of Liu
and other employees.
The company's shares have been suspended for more than a month,
following an 80% plunge in their value on news of the scandal.
China's securities and market regulators opened a probe into
Luckin. The company delayed filing its annual results, saying it
was unable to prepare the financial report amid the coronavirus
pandemic.
About Luckin Coffee
Based in China, Luckin Coffee Inc. (NASDAQ: LK) --
https://www.luckincoffee.com/ --- has pioneered a technology-driven
retail network to provide coffee and other products of high
quality, high affordability, and high convenience to customers.
Empowered by big data analytics, AI, and proprietary technologies,
the Company pursues its mission to be part of everyone's everyday
life, starting with coffee.
As reported in the Troubled Company Reporter-Asia Pacific on April
7, 2020, China Daily said that Luckin Coffee Inc, the so-called
rival to Starbucks in China, has exposed itself to the risks of
delisting and even bankruptcy due to severe fabrication of sales
data, experts said.
China Daily related that the Nasdaq-listed Chinese coffee chain saw
its share price crash more than 75 percent to $6.40 on April 2
after the company disclosed that its earnings results were
substantially inflated. It dropped nearly 15 percent more in the
first two hours of trading on April 3.
Liu Jian, chief operating officer and a director of the company,
and several employees reporting to him, had engaged in misconduct,
including fabricating transactions, a company statement said on
April 2.
The aggregate sales associated with fabricated transactions amount
to around CNY2.2 billion (US$310 million) during the April to
December period last year, according to Luckin's preliminary
internal investigation, the statement said.
MIE HOLDINGS: Defaults on Dollar Note Amid Oil Crash
----------------------------------------------------
Annie Lee, Rebecca Choong Wilkins, and Denise Wee at Bloomberg News
report that a Hong Kong-listed oil explorer became the first
casualty of the spectacular oil price slump in China's offshore
bond market, after defaulting on a dollar note.
MIE Holdings Corp. failed to deliver an interest repayment of about
$17 million for its 13.75% dollar bond due 2022 after a 30-day
grace period expired May 11, Bloomberg discloses citing a filing to
the Hong Kong stock exchange. This triggered cross defaults on
other loan facilities, it said. Potential loan repayment demands,
unfulfilled repayment obligations and possible breaches on loans
and notes amount to over $287.3 million, it added.
Bloomberg says MIE is the latest energy firm to stumble under a
debt load. Across Asia, commodity firms from Vedanta Resources Ltd.
to oil refiner Shandong Qingyuan Group Co. are showing stress after
a historic slump in oil prices. Oil is down about 60% this year
with little clarity over when global consumption will be back to
pre-virus levels, the report notes.
"MIE was already in distress for the past one to two years, so the
default came as no surprise," Bloomberg quotes Leonard Law, analyst
at Lucror Analytics, as saying. "The crash in oil prices was the
hammer blow for the company as it meant they would not be able to
recover."
MIE Holdings, which has an interest in an oilfield in the Jilin
province, saw its cash and equivalents shrinking to $2 million as
of end 2019 from $6.7 million in the previous year, according to
Bloomberg-compiled data.
"The company is experiencing increasing liquidity pressure due to
the significant decline in revenue and cash flow caused by recent
plunge in crude oil prices," MIE, as cited by Bloomberg, said. The
company is discussing the debt restructuring with its advisors and
creditors, which is expected to address its liquidity concerns, it
said.
Trading in the Hong Kong-listed shares has been suspended since
April 1, Bloomberg notes. The stock has plunged 45% this year.
The prospects for a recovery in oil prices remain gloomy because of
the high levels of crude oil in storage and the supply cuts that
aren't deep enough to counter the drop in demand, MIE said,
Bloomberg adds.
About MIE Holdings
MIE Holdings Corp. is an independent upstream oil company operating
onshore in China. The Company operates the Daan, Moliqing and Miao
oilfields in the Songliao Basin of China.
As reported in the Troubled Company Reporter-Asia Pacific on May 7,
2020, Fitch Ratings affirmed and has withdrawn MIE Holdings
Corporation's Long-Term Issuer Default Rating of 'C'. The rating on
MIE's USD248.4 million 13.75% senior notes due April 2022 has also
been affirmed at 'C' with a Recovery Rating of 'RR6' and withdrawn.
The ratings were withdrawn for commercial purposes. The IDR was
affirmed at 'C' because MIE was unable to pay the semi-annual
coupon of USD17 million on its USD248.4 million 13.75% notes. The
coupon was due on April 12, 2020 and the company has a 30-day grace
period until May 11, 2020 to satisfy the payment obligation. The
affirmation of the rating on MIE's US dollar senior notes reflects
an unchanged Recovery Rating of 'RR6'.
TAHOE GROUP: Fitch Cuts LT IDR & Senior Unsec. Rating to CCC+
-------------------------------------------------------------
Fitch Ratings has downgraded China-based homebuilder Tahoe Group
Co., Ltd.'s Long-Term Foreign-Currency Issuer Default Rating and
senior unsecured rating to 'CCC+' from 'B-'. The Recovery Rating on
its senior unsecured rating is 'RR4'. The ratings have been removed
from Rating Watch Negative.
The downgrade reflects uncertainties in the execution of Tahoe's
refinancing plans for the next 12 months. The company plans to
repay the majority of its USD840.5 million in senior notes due in
the short term with new issuance, which faces material execution
risk under current market conditions. In addition, Tahoe's domestic
fund-raising plan is highly reliant on refinancing from non-bank
financial institutions even as its access is likely to weaken after
it was sued by a trust company and placed on a defaulter list. Its
2019 results, which were weaker than its expectations, and
uncertainties over sales this year may further reduce financial
institutions' confidence in the company.
KEY RATING DRIVERS
Uncertainty over Refinancing: Tahoe is highly reliant on borrowings
from trust and asset-management companies, which accounted for
around 61% of total debt, while only 18% of total borrowings as of
end-1Q20 were from bank development loans. Fitch believes Tahoe has
limited access to the local bond market, as it has not issued any
domestic corporate bonds since August 2018. The recent trust
scandal may further reduce Tahoe's access to NBFI funding. Tahoe
has a USD550 million offshore note issuance quota, but Fitch sees
heightened refinancing risk for its offshore senior notes under
current market conditions.
Tight Liquidity: Tahoe had CNY70.2 billion in debt maturing or
puttable within 12 months as of end-1Q20, including CNY55.5 billion
in loans and CNY14.7 billion in capital-market debt. Its cash
balance of CNY5.6 billion can only cover 8% of short-term debt.
Sales and cash collections that are weaker than its expectations
could put further pressure its liquidity this year. Its high
interest expense of CNY11 billion-12 billion a year will continue
to be a drag on its cash flow.
Results Missed Expectations: Tahoe's reported net profit in 2019
was well below Fitch's expectation as a result of a reduction in
consolidated revenue after disposing of several projects and an
unexpected drop in profitability as gross margin narrowed to 18% in
2019 from 29% in 9M19. Management said the margin drop was mainly
attributable to two low-margin projects in Beijing delivered in
4Q19.
Its cash-to-short-term debt ratio deteriorated to 0.24x by
end-2019, well below Fitch's expectation of 0.5x. The deterioration
in liquidity was mainly due to short-term debt rising to CNY54
billion by end-2019 from CNY32 billion in 9M19. This was partly
because a majority of new loans acquired or maturities extended in
4Q19 were short term. In addition, some of its long-term borrowings
were reclassified as short-term debt after Tahoe changed its
auditor to Dahua CPA in 2019. Tahoe chose to replace the previous
auditor, Ruihua CPA, after it was accused of violating China's
securities law when auditing other listed companies.
Removal from Debtors' Blacklist: Tahoe announced a settlement with
Tibet Trust on April 30, 2020 and its chairman was removed from the
defaulter blacklist. Tahoe and its chairman were placed on the
debtors' blacklist by China's Supreme Court after a subsidiary
failed to repay loans to a Chinese trust company. The CNY800
million trust loan was jointly guaranteed by Tahoe and its
chairman, of which CNY680 million was repaid by September 2019.
However, the project company and Tahoe, as its loan guarantor,
failed to repay the remaining CNY120 million based on an agreed
schedule, as they believe part of the obligation should be borne by
non-controlling shareholders.
Moderate Parent and Subsidiary Linkage: Fitch assesses the linkage
between Tahoe and Tahoe Investment, which has a 49% equity stake in
the company, as moderate. This is in light of the stronger
management commonality between Tahoe and the parent since the
beginning of this year and the parent's attempt to inject its life
insurance business into Tahoe. Fitch therefore rates Tahoe based on
the consolidated financial profile of its parent.
The consolidated financials were mainly driven by Tahoe, which
accounted for 90% of its parent's net debt and 84% of total EBITDA.
Fitch believes there is no significant difference between Tahoe
Investment's consolidated credit profile and its listed
subsidiary's credit profile.
ESG Governance - Management Strategy: Tahoe has an ESG Relevance
Score of '4' for management strategy in light of its weak liquidity
management. Tahoe's management strategy has a negative impact on
the credit profile, and is relevant to the rating in conjunction
with other factors. Fitch believes a clearer and longer record of
consistently improving liquidity by management would help in
removing the rating constraint.
ESG Governance - Financial Transparency: Tahoe has an ESG Relevance
Score of '4' for financial transparency. The company applied
aggressive accounting policies before the auditor changed to Dahua
CPA, whose stricter accounting standards led to the
reclassification of some long-term borrowings as short-term debt in
2019. Tahoe's financial transparency has a negative impact on the
credit profile, and is relevant to the rating in conjunction with
other factors.
DERIVATION SUMMARY
Tahoe's ratings are constrained by its tight liquidity and
aggressive financial profile, which are comparable with peers in
the low 'B' category. Tahoe's business profile is similar to that
of higher-rated peers because of its large contracted sales scale,
premium land bank and diversification across regions and products.
Tahoe's attributable sales scale of around CNY70 billion is much
larger than the around CNY20 billion of Guorui Properties Limited
(B-/Negative), which also has tight liquidity. However, Guorui's
leverage of 50%-55% is lower than that of Tahoe and it has a longer
land bank life of over 10 years, compared with Tahoe's three
years.
Tahoe has a stronger business profile with a more diversified land
bank and much larger scale than Xinhu Zhongbao Co., Ltd.
(B-/Stable). Tahoe has over 90 projects across five economic areas
while Xinhu Zhongbao's land bank is concentrated in Shanghai and
the Yangtze River Delta with a total of 30 projects. Xinhu
Zhongbao's sales of CNY16 billion in 2019 were smaller than that of
Tahoe. Xinhu Zhongbao's churn rate, measured by contracted
sales/total debt, of below 0.25x is lower than Tahoe's 0.6x, but
its EBITDA margin, excluding capitalised interest, of over 30% is
wider than Tahoe's 25%-30%.
Xinhu Zhongbao's leverage of around 90% is higher than that of
Tahoe. However, Fitch believes Xinhu Zhongbao's near-term liquidity
is adequate following its recent asset sales.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Contracted sales to decrease by 10% in 2020 and stay flat
thereafter (2019: -3%)
- 20% of sales proceeds to be used for land acquisition in 2020
and 2021 (2019: nil)
- Cash collection rate of 75% in 2020 and 78% in 2021 (2019:
78%)
- EBITDA margin, excluding capitalised interest, of around 28% in
2020 and 2021 (2019: 23.5%)
Key Recovery Rating assumptions:
- The recovery analysis assumes that Tahoe would be liquidated in
a bankruptcy rather than continue as a going-concern due to the
asset-heavy nature of the Chinese homebuilding sector.
- Fitch has assumed a 10% administrative claim.
- The liquidation estimate reflects Fitch's view of the value of
balance-sheet assets that can be realised in a sale or liquidation
process conducted during a bankruptcy or insolvency proceeding and
distributed to creditors.
- Tahoe's cash balance at end-1Q20 was lower than accounts
payable, so Fitch attributed a 100% advance rate to cash while
including accounts payable as first priority in the distribution
waterfall.
- 25% haircut to net inventory and joint-venture net assets in
light of Tahoe's EBITDA margin of 25%-30%
- 65% haircut to investment properties after considering Tahoe's
low rental yield and the quality of its investment-property assets
- 30% standard haircut to account receivables
- 40% standard haircut to net property, plant and equipment
- 70% haircut to available-for-sale financial securities
Based on its calculation of the adjusted liquidation value after
administrative claims, Fitch estimates the recovery rate of the
offshore senior unsecured debt to within the 'RR4' recovery range.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Evidence of improved access to funding channels
- Introduction of new material liquidity sources
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Access to funding continues to weaken
- No material progress on refinancing of offshore senior
notes, particularly the USD530 million due January 2021
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Tight Liquidity: Tahoe's cash balance of CNY5.6 billion was
insufficient to cover its CNY70.2 billion in debt maturing or
puttable within 12 months at end-1Q20. Tahoe's short-term debt
obligations included CNY8.9 billion in domestic corporate bonds,
CNY5.8 billion (USD840.5 million) in senior notes and CNY55.5
billion in financial institution loans. Fitch thinks Tahoe's access
to NBFI borrowings may be weakened by the recent lawsuit, despite
the company having unencumbered assets of CNY46 billion at
end-2019.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Tahoe has an ESG relevance score of '4' for Governance - Management
Strategy and Financial Transparency, which has a negative impact on
the company's credit profile and is relevant to the rating in
conjunction with other factors.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of 3. This means 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.
TAHOE GROUP: Under Fire Amid Doubts Over Project Completion
-----------------------------------------------------------
South China Morning Post reports that troubled Chinese luxury villa
developer Tahoe Group is facing pressure from hundreds of customers
who fear its projects under construction in Beijing and Shanghai
might fail and never be completed.
According to the report, the coronavirus pandemic, which brought
China's economy to a standstill and put a massive strain on
highly-leveraged property developers, has brought the Fuzhou-based
company's cash flow closer to the brink of collapse. Construction
at its sites has been stalled for months and Huang Qisen, its
chairman, was temporarily placed on a national debtors blacklist in
April for failing to repay loans.
In recent weeks, customers who were pre-sold flats and villas by
Tahoe have demanded that the local governments in both cities
investigate its projects, the report says.
"We are 100 per cent certain that Tahoe won't be able to deliver
the project on time in July," the report quotes Jack Chen, a
30-year-old who bought a CNY2.7 million (US$380,502) flat in
Tahoe's Dacheng Xiaoyuan project, which is located in the suburbs
of Shanghai, as saying.
Construction stopped in September and only resumed partially this
month, as Tahoe is behind on payments for building materials, Chen
said, citing information gathered from contractors, the report
relays. "The foundation hasn't even been laid in the southern part
of the project," he said. "We are all so anxious and desperate."
SCMP says more than 300 of the 2,000 customers who bought flats at
Dacheng Xiaoyuan have been trying to gain the local authorities'
attention since April, by staging protests at Tahoe's sales centre
and posting articles on social media platforms.
In Beijing, buyers of Tahoe's villa project Beijing Courtyard last
week used Weibo, China's Twitter-like social-media platform, to
call upon the government to scrutinise and manage the money they
have paid to Tahoe to ensure the project's completion.
The homebuyers have reasons to be concerned. After a global asset
shopping spree between 2017 and 2018, Tahoe currently faces a wall
of debt, even after it offloaded more than a dozen projects last
year, according to SCMP.
Last week, it reported a 59 per cent plunge in cash holdings to
CNY5.6 billion (US$790 million) over the first quarter of this
year, while its revenue plummeted 94 per cent, SCMP discloses. The
dive in revenue was a result of the outbreak, which had pushed
sales off a cliff, the company said in a filing to the Shenzhen
Stock Exchange.
Tahoe's current cash bank is far from sufficient for the repayment
of the CNY70.2 billion in debt that is maturing within 12 months
from the end of March, SCMP discloses citing a report by global
credit rating agency Fitch Ratings released on May 11. It
downgraded its long-term default rating for the company to CCC+
from B-, based on uncertainties around its refinancing plans next
year.
Tahoe will find it difficult to raise new capital, according to
Fitch, after Huang was added to the Supreme People's Court's
debtors list in late April for failing to repay a CNY120 million
loan to a trust company, SCMP relays. Even though he was later
removed from the list, after Tahoe settled with the trust,
borrowers are likely to have weaker confidence in the developer,
which has two-thirds of its debt in borrowings from trust and asset
management companies, the rating agency said.
Tahoe Group Co., Ltd operates real estate development businesses.
The Company provides house loans, housing renovation, housing
loans, real estate brokerage, property management, and other
services. Tahoe Group also operates hotel management, investment
management, and other businesses.
YIHUA ENTERPRISE: S&P Cuts ICR to 'SD' on Missed Interest Payment
-----------------------------------------------------------------
S&P Global Ratings, on May 11, 2020, lowered its long-term issuer
credit rating on Yihua Enterprise (Group) Co. Ltd. to 'SD' from
'CCC'. S&P also lowered the long-term issue rating on the company's
outstanding guaranteed notes to 'CC' from 'CCC-'.
Concurrently, S&P withdrew the ratings due to insufficient
information.
S&P said, "We lowered our issuer credit rating on Yihua to 'SD'
based on its missed interest payment on a domestic bond and our
view that the payment is highly unlikely to be made within our
imputed five-day grace period." On May 6, 2020, Yihua announced the
interest nonpayment on its domestic medium-term notes due 2022.
There is no stated grace period on this note. A default could
trigger an acceleration of its various payment obligations.
Yihua is still servicing its US$250 million guaranteed senior
unsecured notes due on Oct. 23, 2020. However, the company faces
significant repayment risk on its debt. Yihua's liquidity is very
weak, with an estimated cash balance of less than RMB1 billion as
of Dec. 30, 2019. This is insufficient to cover the company's
bullet maturities of RMB5.5 billion for the rest of 2020.
S&P thinks it is unlikely that Yihua will receive timely support
from the Shantou city government or will be able to arrange
refinancing for the upcoming three onshore bonds totaling RMB2.8
billion due in July 2020.
On April 30, 2020, the auditor of Yihua Lifestyle Technology Co.
Ltd., Yihua's key subsidiary, indicated that it was unable to
express an audit opinion on the validity of the company's financial
statements. As a result, S&P is withdrawing its ratings due to
insufficient information.
=================
H O N G K O N G
=================
CATHAY PACIFIC: Egan-Jones Lowers Senior Unsecured Ratings to B-
----------------------------------------------------------------
Egan-Jones Ratings Company, on April 29, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Cathay Pacific Airways Ltd to B- from B. EJR also
downgraded the rating on commercial paper issued by the Company to
C from B.
Cathay Pacific Airways Ltd., also known as Cathay Pacific or
Cathay, is the flag carrier of Hong Kong, with its head office and
main hub located at Hong Kong International Airport.
=========
I N D I A
=========
AGRI VENTURE: CARE Keeps D on INR5.9cr Loans in Not Cooperating
---------------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Agri
Venture continues to remain in the 'Issuer Not Cooperating'
category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long/Short-term 5.95 CARE D/CARE D; Issuer not
Bank Facilities cooperating; Based on best
available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated February 15, 2019, placed
the ratings of Agri Venture under the 'Issuer noncooperating'
category as Agri Venture had failed to provide information for
monitoring of the rating as agreed to in its Rating Agreement.
Agri Venture continues to be non-cooperative despite repeated
requests for submission of information through phone calls and
letter/emails dated April 15, 2020, April 17, 2020, April 20, 2020
and April 23, 2020. In line with the extant SEBI guidelines, CARE
has reviewed the rating on the basis of the best available
information which however, in CARE's opinion is not sufficient to
arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
At the time of last rating done on February 15, 2019, the following
was the rating weakness:
Key Rating Weaknesses
* Delay in debt servicing: Agri venture has been irregular in
servicing its debt obligation due to its weak liquidity position.
Rajkot-based (Gujarat), Agri Venture was incorporated in 2014. Agri
Venture is merchant exporter of Agri commodities such as Sesame
Seeds, Turmeric Finger, Groundnut and Cumin seeds. Mr. Chirag
Mahesh Sangani, proprietor, who has an experience of more than
thirteen years, manages the overall operations of the firm. They
majorly export to countries like Vietnam, Greece, Turkey, Israel
and Egypt.
AKANSHA FASHIONS: CARE Lowers Rating on INR7.50cr Loan to 'B'
-------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Akansha Fashions (AF), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 7.50 CARE B; Stable; Issuer not
Facilities cooperating; Revised from
CARE B+; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from AF to monitor the ratings
vide e-mail communications/letters dated November 5, 2019, January
2, 2020, February 28, 2020, March 12, 2020 and numerous phone
calls. However, despite repeated requests, the firm has not
provided the requisite information for monitoring the ratings. In
the absence of minimum information required for the purpose of
rating, CARE is unable to express opinion on the rating. In line
with the extant SEBI guidelines CARE's rating on AF's bank
facilities will now be denoted as CARE B; Stable 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(s).
The ratings have been revised on account deterioration in profit
margins, debt coverage indicators, leveraged capital structure,
elongated operating cycle during FY19 over FY18. CARE also views
information availability risk as a key factor in its assessment of
credit risk.
Detailed description of the key rating drivers
At the time of last rating on March 31, 2019, the following were
the rating strengths and weaknesses (updated for the partial
information available from client):
Key Rating Weaknesses
* Small scale of operations: During FY19, the scale of operations
of AF has remained small with total operating income (TOI) has
stood at INR18.54 crore in FY19 (vis-à-vis INR16.13 crore in
FY18). The tangible net worth of the firm also remained small at
INR3.14 crore as on March 31, 2019 and thus limiting the financial
flexibility of the entity.
* Leveraged capital structure and moderate debt coverage
indicators: The capital structure of AF remained leveraged due to
high reliance on the external debt along with low tangible
networth. The overall gearing remained very high at 3.79x as on
March 31, 2019(vis-à-vis 4.22x as on March 31, 2018). With high
level of debt and meager cash accruals, the debt coverage
indicators also remained at weak level and the same have
deteriorated in FY19 over FY18.
* Working capital intensive nature of operations: The operations
of AF are working capital intensive in nature on account of funds
being blocked in receivables and inventory as the company gives
liberal credit period to its customers and also maintain high level
of inventory for processing and to meet regular demand from
customers. The operating cycle remained stretched at 225 days in
FY19 (vis-à-vis 175 days in FY18) resulting in high level of
utilization in working capital limits.
* Highly fragmented nature of industry characterized by intense
competition: AF operates in the textile industry which is highly
fragmented industry with presence of numerous independent
small-scale enterprises owing to low entry barriers leading to high
level of competition in the processing segment. The intense
competition in highly fragmented textile processing industry also
restricts ability to completely pass on volatility in input cost to
its customers, leading to lower profit margins.
* Susceptibility of margins to volatile raw material prices: Prices
of raw material i.e. fabric made up of cotton and polyester yarn
i.e. POY (partially oriented yarn) and PTY (polyester textured
yarn) are primarily dependent on availability of cotton and prices
of crude oil which are volatile in nature. Considering the highly
fragmented nature of textile industry and limited bargaining power
with the customers and suppliers; any adverse volatility in the raw
material prices may hamper the firm's profit margins.
* Proprietorship nature of constitution: Being a proprietorship
firm, AF has inherent risk of withdrawal of proprietor'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 proprietor 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.
Key rating Strengths
* Long track record of operations along with experienced promoter:
AF possesses an established track record of almost two decades in
the textile industry. Furthermore, AF benefits from the experience
of the key promoter Mr. Jiteen Mohan Mansukhaney who possesses an
average experience of more than two decades in the textile
industry.
* Moderately diversified customer and supplier base: AF deals with
various customers across the country and keeps getting regular
orders from them.
* Operates on moderately comfortable profit margins: AF operates
on moderately comfortable PBILDT margin which has remained
fluctuating and in the range of 10%-12% during past three years
ended FY19 primarily on account of high value addition nature of
operations in women's fashion wear segment. Moreover, PAT margin
has also remained moderate in the range of 2%-5% during the same
period.
Akansha Fashions (AF) was established in the year 1999 by Mr.
Jiteen M. Mansukhaney and it is engaged in manufacturing of women's
fashion clothing. AF procures its raw material such as cloth and
yarn, from the suppliers located in Maharashtra and sells final
product in the domestic market across India. The manufacturing unit
is situated at Thane, Maharashtra with installed capacity of 2.19
lakh pieces per annum as on March 31, 2019. The entity sells its
product under the brand name of "PEACH".
ANN PRODUCTS: CARE Lowers Rating on INR9.75cr Loan to B-
--------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of Ann
Products and Machines Private Limited (APMPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 9.75 CARE B-; Stable; Issuer not
Facilities cooperating; Revised from
CARE B; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated February 6, 2019 placed the
rating of APMPL under the 'issuer non-cooperating' category as
APMPL had failed to provide information for monitoring of the
rating. APMPL continues to be non-cooperative despite repeated
requests for submission of information through e-mails dated April
27, 2020, April 28, 2020 and numerous phone calls. In line with the
extant SEBI guidelines, CARE has reviewed the rating on the basis
of the best available information which however, in CARE's opinion
is not sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
The ratings has been revised by taking into account
non-availability of requisite information and no due-diligence
conducted with banker due to non-cooperation by Ann Products and
Machines Private Limited with CARE'S efforts to undertake a review
of the rating outstanding. CARE views information availability risk
as a key factor in its assessment of credit risk. Further, the
ratings continue to remain constrained owing by limited experience
of promoters in food processing industry , project stabilization
risk associated with debt funded project coupled with debt funding
not tied up , raw material prices dependent on agro-climactic
conditions and competition from organized and unorganized sectors.
The ratings, however, continue to take comfort from association
with established brand- "Patanjali" and favorable food Industry
Outlook.
Detailed description of the key rating drivers
At the time of last rating on February 6, 2019, the following were
the rating weaknesses and strengths:
Key Rating Weaknesses
* Limited experience of promoters in food processing industry: APM
is currently in processing of acquiring a processing facility of
fruits and vegetables which is a new venture for its promoters who
do not have any previous experience in the business. The promoters
of company, Mr. Vivek Gupta had an experience of more than two
decades in construction and manufacturing industry. Mr. Sachin
Pandey had an experience of more than one decade in real estate and
trading industry. Both the promoters shall look after the
day-to-day operation of the company. They have ventured into food
processing industry due to the increasing demand of ready-to-cook
food products and favorable government policies to support the
same.
* Project stabilization risk associated with debt funded project
coupled with debt funding not tied up: APM is in process to
acquire a unit set up for production of various food products like
tomato soup, concentrates, sauce, puree, ketchup, fruit jam and
jelly, pickles etc with a total project cost of INR12.50 crores to
be funded through term loan of INR9.25 crores and balance through
promoter's contribution. The debt for the same is yet to be tied
up. Hence, it exposes the company to funding risk. Furthermore,
stabilization of the manufacturing facilities to achieve the
envisaged scale of business associated with the products in the
light of competitive nature of industry remains crucial for the
company.
* Raw material prices dependent on agro-climactic conditions: The
major raw material for the company consists of vegetables and
fruits. The prices of which are highly fluctuating because of their
seasonal availability and other factors like irregularity of
climatic condition to unpredictable yields However, the risk is
partially mitigated by the fact that the raw material will be
supplied to the company from Patanjali Ayurveda Limited itself.
* Competition from organized and unorganized sectors: The nature
of business of the company is highly competitive with presence of
highly established players. APM is exposed to intense competition
from organized domestic and international brands Kissan, Del Monte
etc. Apart from the organized players, the company faces challenge
from various smaller players in the market. Moreover, the business
is also susceptible to changing preferences of consumers towards
products, brands, etc.
Key rating strengths
* Association with established brand "Patanjali": The company has
entered into an agreement with Patanjali Ayurved Limited (PAL) for
manufacturing, packing and selling of food and edible items for
tenure of 7 years with the assured supply of basic raw materials &
buy back arrangements. Company's association with PAL and will
provide broad support with respect to the product off take and
reputed customers base ensures timely realization of receivables.
* Favorable Industry Outlook: The Indian food industry is poised
for huge growth, increasing its contribution to world food trade
every year. In India, the food sector has emerged as a high-growth
and high-profit sector due to its immense potential for value
addition, particularly within the food processing industry. The
Indian food and grocery market is the world's sixth largest, with
retail contributing 70 per cent of the sales. The Indian food
processing industry accounts for 32 per cent of the country's total
food market, one of the largest industries in India and is ranked
fifth in terms of production, consumption, export and expected
growth. Also, busier consumer lifestyle, rising purchasing power,
rapid urbanization and increase in population of the country has
led to fuelling the demand and development of food processing
industry.
Delhi based ANN Products and Machines Private limited (APMPL) was
incorporated in December 27, 2016 by Mr. Vivek Gupta and Mr. Sachin
Pandey.The company is planning to acquire an old running unit
namely 'Divya Bhoj Sansthan' with state of art set up of production
line for various food products like Tomato soup, concentrates,
sauce, puree, ketchup, fruit jam and jelly, pickles of various
types. APMPL has also entered in to an agreement with a well-known
group 'Patanjali' for 7 years for a supply order of products
manufactured by it such as tomato ketchup, fruit jam and other food
products with the assured supply of basic raw materials & buy back
arrangements from Patanjali.
ARPEE ENERGY: Ind-Ra Lowers LT Issuer Rating to B+, Outlook Stable
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has downgraded Arpee Energy
Minerals Private Limited's (AEMPL)'s Long-Term Issuer Rating to
'IND B+' from 'IND BB- (ISSUER NOT COOPERATING)'. The Outlook is
Stable.
The instrument-wise rating actions are:
-- INR70 mil. Fund-based working capital limits downgraded with
IND B+/Stable rating.
KEY RATING DRIVERS
The downgrade reflects AEMPL's continued medium scale of
operations. The company's revenue grew to INR738.53 million in FY19
(FY18: INR417.42 million) due to an increase in orders received. In
11MFY20, the company registered revenue of INR457.89 million.
The rating is constrained by AEMPL's modest EBITDA margin, which
contracted to 2.19% in FY19 (FY18: 3.24%) due to the company's
execution of lower-margin new orders. Its return on capital
employed was 10.41% in FY19 (FY18: 8.69%).
The rating is further constrained by the company's weak credit
metrics. AEMPL's interest coverage (operating EBITDA/gross interest
expenses) improved to 1.89x in FY19 (FY18: 1.42x) and net leverage
(adjusted net debt/operating EBITDA) to 3.59x (4.90x) due to an
improvement in absolute EBITDA to INR16.19 million (INR13.53
million).
Liquidity Indicator – Stretched: The company's average use of its
fund-based working capital facility was 83% for the last 12 months
ending March 2020. The company's cash flow from operations turned
positive to INR12 million in FY19 (FY18: negative INR0.31 million)
due to favorable changes in the working capital. Its working
capital cycle improved to 17 days in FY19 (FY18: 217 days) due to
lower debtor days and an increase in creditor days. AEMPL had cash
and cash equivalents of INR11.20 million in FY19 (FY18: INR5.18
million).
The rating, however, benefits from the promoter's experience of
more than three decades in the coal trading business.
RATING SENSITIVITIES
Negative: A deterioration in the scale of operations and liquidity
position, leading to the interest coverage reducing below 2x, on a
sustained basis, could be negative for the ratings.
Positive: An improvement in the liquidity position, leading to a
sustained improvement in the interest coverage could lead to
positive rating action.
COMPANY PROFILE
Incorporated in 2006, AEMPL is engaged in the business of coal
trading in Ranchi, Jharkhand. The company procures trading
materials from Central Coalfields Limited, Bihar Foundry & Castings
Ltd and others, and sells them to players in the steel and power
industry. The company's promoter director is Praveen Agarwal.
AVIGHNA DAIRY: CARE Keeps D Debt Ratings in Not Cooperating
-----------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Avighna
Dairy Products Private Limited (ADPPL) continues to remain in the
'Issuer Not Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 9.95 CARE D; Issuer not cooperating;
Facilities Based on best available
information
Short-term Bank 1.00 CARE D; Issuer not cooperating;
Facilities Based on best available
information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated March 15, 2019, placed the
rating(s) of ADPPL under the 'Issuer not Cooperating' category as
ADPPL had failed to provide information for monitoring of the
rating and had not paid the surveillance fees for the rating
exercise as agreed to in its rating agreement. ADPPL continues to
be noncooperative despite repeated requests for submission of
information through e-mails, phone calls and an email dated April
22, 2020. In line with the extant SEBI guidelines, CARE has
reviewed the rating on the basis of the best available information
which however, in CARE's opinion is not sufficient to arrive at a
fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating(s).
The ratings continues to take into account delay in debt
servicing.
Detailed description of the key rating drivers
At the time of last rating on March 15, 2019, the following were
the rating strengths and weaknesses:
Key Rating Weaknesses
* Delays in debt servicing: There were instances of delay in debt
servicing in the past. Further, as per banker interaction, the
account has been classified as NPA.
Dewas (Madhya Pradesh) based Avighna Dairy Products Private Limited
(ADPPL) was formed in 2007 as a private limited company by Mr.
Nitin Panchal, Mrs. Priya Panchal, Mr. Sunil Kumawat and Mrs. Kanta
Kumawat. The company is engaged in the business of processing of
milk and milk based products. It purchases milk from local farmers
with the help of agents and process in its plant. The products of
the company include flavored milk, paneer, ghee, curd etc. The firm
has installed capacity of 130000 liters Per Day of raw-milk as on
March 31, 2017. The company sell its product under brand name of
"Moloko" and "Shreshtha". The company hold certification under Food
Safety and Standards Authority of India (FSSAI).During FY18, ADPPL
has taken two project for construction of building and acquisition
of machinery for increasing its chilling capacity from 30,000
liters per day to 90,000 liters per day. The cost estimated for
acquisition of machinery is INR2.85 crore which was funded through
term loan of INR2.10 crore and remaining through infusion of share
capital.
GIRIRAJ EXIM: CARE Lowers Ratings on INR70cr Loan to B+/A4
----------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Giriraj Exim Private Limited (GEPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long term/Short 70.00 CARE B+; Stable/CARE A4;
term Bank Issuer Not Cooperating;
Facilities Revised from CARE BB+;
Stable/CARE A4; Issuer Not
Cooperating on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated April 3, 2019, placed the
rating of GEPL under the 'issuer non-cooperating' category as GEPL
had failed to provide information for monitoring of the rating.
GEPL continues to be noncooperative despite repeated requests for
submission of information through e-mails dated February 10, 2020,
February 21, 2020 and March 4, 2020 and numerous phone calls. In
line with the extant SEBI guidelines, CARE has reviewed the rating
on the basis of the best available information which however, in
CARE's opinion is not sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating(s).
The rating has been revised on account of group's weak leverage and
interest coverage indicators during FY19.
Detailed description of the key rating drivers
At the time of last rating on April 5, 2019, the following were the
rating strengths and weaknesses.
Key Rating Weaknesses
* Continued weak operating performance: The group's top line grew
by 13% on a y-o-y basis in FY19. The operating margins are thin and
susceptible to volatility in raw material prices due to nature of
the business. In FY19, the group reported operating profit of
INR8.87 crore (PY: loss of INR6.18 crore). However, its
profitability indicators remained modest at 1.24% in FY19.
* Highly leveraged capital structure: Giriraj group's overall
gearing remained elevated at 4.64x as on March 31, 2019. Further
its interest coverage indicators stood below unity during FY19. Its
Total debt to GCA also remained high at 48.15x as on March 31,
2019.
* Working capital intensive nature of operations: The group
operates in working capital intensive nature of business due the
credit period offered to customers along with inventory held.
Though, the same is partially set off to some extent due to the
credit period offered by suppliers. During FY18, the operating
cycle continues to be high at 69 days.
* Fragmented and competitive nature of industry: Steel trading
business is characterized by highly competitive, fragmented and
cyclical business which is strongly correlated to economic cycles;
hence earning is low. Further, metal trading industry has very low
entry barriers and a large number of unorganized players in the
industry resulting in intense competition.
Key Rating Strengths
* Experience of promoters and established track record of
operations: Giriraj group is promoted by the Shah family and the
head office is located in Ahmedabad, Gujarat with business
operations spread across Maharashtra and Gujarat. The Shah family
is in this business since 1947 and the promoters of both the
Companies Mr. Bhadresh Shah and Mr. Shailesh Shah, Directors have
over three decades of experience in the similar line of business.
* Diversified clientele and product portfolio: Giriraj group
operates only in the domestic market and has established a
diversified client network over the years. Giriraj group's product
portfolio comprises of various products including HR coil, HR
sheet, MS coil, MS plates, TMT Bars.
Analytical approach: Combined
For the purpose of ratings, CARE has taken a combined view of
Giriraj Exim Private Limited (GEPL) and Giriraj Iron Limited (GIL)
as both the companies have a common management, are in the same
line of business, and have the same infrastructure setup to run the
business. Together these companies are referred to as the Giriraj
Group.
Giriraj Exim Private Limited (GEPL) and Giriraj Iron Limited (GIL)
are together referred to as Giriraj group. GEPL was found in 2008
as an importer of M S Steel. GIL was established in 2011 as a
trading company in a variety of products including H R Coil, H R
Sheet, M S Coil, M S Plates, T M T Bars, etc. Giriraj group is
promoted by the Shah Family who has been in this business since
1947. The promoters of both the companies i.e. Mr Bhadresh Shah
(Director) and Mr Shailesh Shah (Director) both have 30 years of
experience in similar line of business. Giriraj's head office is
located in Ahmedabad, Gujarat with business operations spread
across Maharashtra and Gujarat.
GN POULTRY: CARE Lowers Rating on INR6cr Loan to B-
---------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of GN
Poultry Farms, as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 6.00 CARE B-; Stable; Issuer not
Facilities cooperating; Revised from
CARE B; ISSUER NOT COOPERATING;
on the basis of Best available
information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated April 1, 2019, placed the
ratings of GN Poultry Farms under the 'issuer noncooperating'
category as company had failed to provide information for
monitoring of the rating. The company continues to be
non-cooperative despite repeated requests for submission of
information through e-mails, phone calls and email dated April 22,
2020 .In line with the extant SEBI guidelines, CARE has reviewed
the rating on the basis of the best available information which
however, in CARE's opinion is not sufficient to arrive at a fair
rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
At the time of last rating on March 25, 2019 the following were the
rating strengths and weaknesses:
Key Rating Weakness
* Small scale of operations with fluctuating total operating
income: Despite, GNPF has a track record of around 8 years in the
poultry farm industry, the total operating income (TOI) of the
firm has been fluctuating in in the range of INR9 crore to INR12
crore due to fluctuation in the prices of poultry layers and
eggs.
* Net loss incurred during review period: The firm has been
incurring net losses during the review period due to low operating
profit in absolute terms resulting in under absorption of high
financial expenses and depreciation expenses.
* Leveraged capital structure and weak coverage indicators: The
capital structure of the firm marked by overall gearing ratio
remained leveraged and stood negative at -26.46x as on March 31,
2017 due to the erosion of net worth on account of continues net
losses during review period. The debt profile of the firm as on
March 31, 2017 includes working capital bank borrowing (58%) and
unsecured loans (42%). Unsecured loans interest free loans taken
for the purpose of working capital utilization. The debt coverage
indicators of the firm remained at weak level in FY17 marked by
total debt/GCA deteriorating in the range of 82.62x in FY15 to
126.03x in FY17 due to increase in total debt levels. Furthermore,
the PBILDT interest coverage ratio, also seen decreasing from 1.30x
in FY15 to 1.14x in FY17 due to increase in financial expenses
coupled with low operating profit.
* Working capital intensive nature of operations: The operating
cycle of the firm remained high during the review period. The firm
mostly deals in cash sales resulting in a very low collection
period of 17 days as on March 31, 2017 and avails the credit period
from its supplier on average of 45- 60 days for purchasing inputs
like maize, soya, broken rice etc. The firm, however, due to its
nature of business, wherein the firms are required to keep high
inventory level of parent bird and raw material stock to feed the
birds in different growing stages and to mitigate fluctuation in
raw material prices has a high raw material inventory period of 275
days as on March 31, 2017. Further, the average working capital
utilizations of the firm stood high at 95% during the period ending
on February 28, 2018.
* Highly fragmented industry with intense competition from large
number of players and vulnerability of profits to raw material
price movements: GNPF faces stiff competition in the poultry
business from large number of established and unorganized players
in the market. Competition gets strong with the presence of
unorganized players leading to pricing pressures. However, improved
demand scenario of poultry products in the country enables well for
the firm. Further, the prices of inputs, like maize, soya, and
birds etc. which account to more than 80% of the total cost of
sales and are volatile in nature based on the availability and
demand, also have an impact on the profitability of the firm.
* Constitution of entity as a partnership firm with inherent risk
of withdrawal of capital: With the entity being partnership firm,
there is an inherent risk of instances of capital withdrawals by
partners resulting in lesser of entity's net worth. Further, the
partnership firms are attributed to limited access to funding.
* Vulnerability of the industry's performance to outbreaks of flu
and other diseases: Intermittent outbreaks of bird flu have
affected sales of eggs in the last few years. These avian flu
outbreaks lead to a drastic fall in demand followed by crash in
poultry prices. News of bird flu outbreak in previous years had led
to banning poultry and related products in many states. Such a ban
could lead to poultry products being piled up leading to an excess
supply situation thereby causing a sharp fall in poultry prices. In
case of such scenario against an increasing trend noted in feed
prices (maize and soya) could pressurize the firm's revenue flows
as well as profitability.
Key Rating Strengths
* Moderate track record and experience of partners in the poultry
farm industry: GNPF was established in 2011 by Mr. Ramchandra
Reddy and Mr. Narsi Reddy. Mr. Ramchandra Reddy is a qualified
graduate in Dental Surgery. Both the partners have close to one
decade of experience in the poultry farm industry since inception
of the business. They have established good relationship with the
suppliers and customers due to presence in the business for a long
period of time.
* Increasing PBILDT margin: The PBILDT margin of the firm has been
increasing y-o-y and remained at satisfactory level during the
review period. The PBILDT margin of the firm increased from 5.48%
in FY15 to 7.52% in FY17 due to decrease in the raw material prices
of maize, soya, broken rice, minerals, etc on account of purchasing
in bulk quantity.
* Favorable demand outlook of Indian poultry industry: Poultry
products like eggs have large consumption across the country in the
form of bakery products, cakes, biscuits and different types of
food dishes in home and restaurants. The demand has been driven by
the rapidly changing food habits of the average Indian consumer,
dictated by the lifestyle changes in the urban and semi-urban
regions of the country. The demands for poultry products are
sustainable and accordingly, the kind of industry is relatively
insulated from the economic cycle.
Telangana based GN Poultry Farms (GNPF) was established as a
partnership firm in the year 2011. GNPF was promoted by Mr.
Ramchandra Reddy and Mr. Narsi Reddy. The firm is engaged in layer
poultry farming and wholesale trading of eggs. The firm has an
installed capacity of 20,000 layers in 7 sheds as on February 28,
2018. The firm sells its products, eggs, cull birds, and manure to
the customers located in Telangana, Andhra Pradesh and Karnataka.
The firm purchases inputs for feeding of birds like maize, soya,
broken rice, shell grit and minerals from local traders.
HANUMAN COTTON: CARE Keeps D on INR8cr Loans in Not Cooperating
---------------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Hanuman
Cotton Industries (HCI) continues to remain in the 'Issuer Not
Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 8.01 CARE D; Issuer not cooperating;
Facilities Based on best available
Information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated February 6, 2019, placed the
rating(s) of HCI under the 'issuer non-cooperating' category as HCI
had failed to provide information for monitoring of the rating. HCI
continues to be non-cooperative despite repeated requests for
submission of information through e-mails, phone calls and a
letter/email dated April 16, 2020, April 27, 2020, April 28, 2020
and April 29, 2020. In line with the extant SEBI guidelines, CARE
has reviewed the rating on the basis of the best available
information which however, in CARE's opinion is not sufficient to
arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating(s).
Detailed description of the key rating drivers
At the time of last rating on February 6, 2019, the following was
the rating weaknesses:
Key Rating Weaknesses
* On-going delay in debt servicing: Owing to weak liquidity
position, there are on-going delays in debt servicing.
Hanuman Cotton Industries (HCI) was constituted in March 2006 as a
partnership firm by Vekaria family based out of Amreli (Gujarat) by
eight partners with unequal profit and loss sharing agreement among
them. HCI is primarily engaged in cotton ginning & pressing
activities with an installed capacity of 10,886 Metric Tonnes Per
Annum (MTPA) for cotton bales, 18,380 MTPA for cotton seeds and
oil-seed crushing facility with a capacity of 1381 MTPA as on March
31, 2015 at its manufacturing facility located at Savarkundla in
Amreli district (Gujarat).
HPCL-MITTAL ENERGY: Fitch Alters Outlook on 'BB' LT IDR to Negative
-------------------------------------------------------------------
Fitch Ratings has revised the Outlook on India-based HPCL-Mittal
Energy Limited to Negative from Stable and has affirmed the
Long-Term Issuer Default Rating at 'BB'. The agency has also
affirmed the ratings on the company's USD375 million 5.25% senior
unsecured notes due 2027, and USD300 million 5.45% senior unsecured
notes due 2026 at 'BB-'.
The Negative Outlook reflects the risk of potential weakening in
the Standalone Credit Profile of HMEL's parent, Hindustan Petroleum
Corporation Limited (HPCL, BBB-/Stable), of 'bb' due to prolonged
weakness in demand and refining margins beyond Fitch's current
expectations. Demand for petroleum products has fallen sharply
since the onset of the coronavirus pandemic in March 2020, leading
to lower refining utilisation rates and margins. Fitch expects
demand for petroleum products to gradually recover during the
financial year ending March 2021 and reach the pre-pandemic levels
during the following year.
Fitch has also revised its assessment of HMEL's standalone profile
to 'b+' from 'bb-' due to its expectations of weaker gross refining
margins, which will undermine its financial profile. Fitch expects
HMEL's net leverage (total net debt / operating EBITDA) to remain
well above 5.0x over FY21-FY22 on weakness in industry-wide
refining margins and rising debt levels from its capex.
HMEL's IDR benefits from a two-notch uplift from its standalone
profile, based on its assessment of HMEL's moderate linkages with
its parent in line with Fitch Ratings' Parent and Subsidiary Rating
Linkage criteria. However, the IDR is constrained by HPCL's SCP as
Fitch does not believe that HPCL's parent, Oil and Natural Gas
Corporation Limited, or the Indian government (BBB-/Stable), would
ultimately provide support to HMEL. Previously, only one notch of
uplift was assigned as HMEL's standalone profile was at 'bb-'.
KEY RATING DRIVERS
Weaker Refining Margins: Fitch expects HMEL's refinery throughput
to fall to around 10 million tonnes in FY21 from around 12.3MT in
FY20, due to a significant fall in demand for transportation fuel
in India in 1QFY21, and HMEL's planned maintenance shutdown. Fitch
expects demand to improve gradually and support recovery in
utilisation to pre-pandemic levels during 2HFY21.
Fitch cuts HMEL's GRM estimates for FY21 by around 20% as Fitch
expects product cracks to remain weak until global economic growth
recovers materially from the coronavirus crisis. Fitch expects
HMEL's refining margins to improve in FY22 as Fitch expects demand
to recover. Consequently, Fitch expects HMEL's EBITDA to remain
weak in FY21 and improve in FY22. HMEL's reported EBITDA of INR30
billion in FY20 (FY19: INR52 billion), excluding exceptional
inventory write-down, was dragged down by weak GRMs.
Large Capex Underway: HMEL plans capex of around INR82 billion over
FY21-FY22 for its petrochemical project. Fitch now expects the
project's completion to be delayed by 3-4 months due to the
nationwide lockdown and related labor shortages and logistical
challenges, and a more gradual stabilisation of the plant after
commissioning. Consequently, Fitch expects the contribution from
petrochemical operations to HMEL's operating cash flows to be
negligible during FY22 and expect the contribution to improve
gradually in FY23.
Weaker Financial Metrics: Fitch expects HMEL's net leverage to be
around 7.5x in FY21, and 5.5x in FY22, weaker than its previous
estimates due to deterioration in its refining operations. Although
Fitch expects leverage to improve to less than 5.0x in FY23, Fitch
believes the improvement is now subject to higher risks than
earlier because of a prolonged weakness in refining margins and
delays in stabilisation of the petrochemical project.
Standalone Profile: HMEL's standalone profile of 'b+' reflects its
strong refining asset quality, potential diversification benefits
from the petrochemical expansion and presence in India, a strong
growth market. The benefits are counterbalanced by its exposure to
the volatility of the international refining cycle through a single
location and expectations of high leverage levels. Nonetheless,
given its current leverage expectations, Fitch believes the
standalone assessment has adequate headroom.
Strong Linkage with Parent: HMEL's rating benefits from its strong
strategic and moderate operational linkages with HPCL. As a result,
HMEL enjoys a two-notch uplift from its standalone assessment,
although the IDR is capped at HPCL's SCP of 'bb'. HPCL's agreement
to buy all of HMEL's liquid products, except naphtha, is valid
until 2026 - with an option to extend it for two more terms of five
years each. This offtake agreement accounted for around 90% of
HMEL's FY19 output by value. HMEL represents over 26% of HPCL's
refining capacity following its refinery expansion and it is
accorded first priority by HPCL for sourcing its product
requirements in north India, where HMEL is its only refinery.
Risks to HPCL's SCP: Fitch believes that risks of HPCL's SCP being
revised lower have increased considerably, given the
coronavirus-induced drop in demand for refined products, continued
oversupply in the regional market, and HPCL's large capex to expand
capacity at its refineries, despite lower capex on greenfield
projects. Fitch expects HPCL's net leverage, including HMEL on a
proportionately consolidated basis, to weaken to above 5.0x over
FY20 and FY21, above the threshold where Fitch would consider
revising down the SCP, before improving to around 4.0x from FY22,
in line with its current SCP.
The weakness in HPCL's refining operations is partly offset by
higher marketing margins as oil marketing companies kept the retail
selling prices of diesel and petrol largely unchanged from March 16
to May 5, 2020 and did not pass on lower crude oil prices to
customers. Nonetheless, if the depth and duration of the current
downturn extends beyond its baseline scenario, HPCL's SCP could be
revised lower.
Bond Ratings Notched Down: Fitch has rated HMEL's USD300 million
5.45% senior unsecured bond due 2026 and USD375 million 5.25%
senior unsecured notes due 2027 one notch below its IDR due to the
high proportion of secured debt (around 75%) in its capital
structure. Fitch expects secured debt/EBITDA to stay well above 3x
over the medium term, as borrowing for its petrochemical expansion
is likely to be mostly on a secured basis.
DERIVATION SUMMARY
HMEL's IDR includes a two-notch uplift for its moderate linkages
with HPCL. HPCL is one of India's largest fuel-marketing companies,
with the second-largest number of retail fuel outlets and about 24%
market share. HPCL's refining capacity of 27 million metric tonnes
per annum (mmtpa), including all of HMEL's 11.3mmtpa capacity,
accounts for around 11% of India's refining capacity. HPCL's larger
scale, integration into fuel retailing, and better expected
financial profile result in its SCP being two notches higher than
that of HMEL.
HMEL's standalone profile of 'b+' reflects its strong refining
asset quality, future diversification benefits from the
petrochemical expansion and presence in a strong growth market.
HMEL's standalone profile is two notches higher than the IDR of
Sweden-based Corral Petroleum Holdings AB (CPH, B-/RWN). HMEL has
stronger liquidity, better asset quality, stronger profitability
and operates in a strong growth market, while CPH's liquidity has
deteriorated and its operations are in the mature European market,
where Fitch expects excess refining capacity and structural decline
in fuel consumption. While HMEL's leverage is higher, a downward
revaluation of CPH's borrowing base facility has resulted in a
liquidity squeeze in March 2020, underpinning the RWN and its
downgrade to 'B-' from 'B+'.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Long-term crude oil prices (Brent) of USD37.5 a barrel in FY21
and USD47 a barrel in FY22
- GRMs to remain weak in FY21 at around FY20 levels, though
benefiting from significantly lower crude oil prices compared to
FY20. GRMs to improve gradually, supported by demand recovery in
FY22 to closer to FY19 levels.
- Refinery throughput of 9.9mmtpa in FY21 and 12.3mmtpa in FY22
- Capex of INR41 billion in FY21 and INR48 billion in FY22
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- The Outlook is Negative and Fitch therefore does not expect
positive rating action. However, developments that may lead to a
revision in the Outlook to Stable include an improvement in HPCL's
SCP, provided linkages remain intact and HMEL's standalone profile
does not weaken.
- Decrease in HMEL's net leverage to below 5.0x on a sustained
basis may lead to upward revision of its standalone profile.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Weakening of linkages between HPCL and HMEL
- Weakening of HPCL's SCP, provided the linkages remain intact
- Weakening of HMEL's standalone profile
- Increase in HMEL's net leverage to over 6.0x on a sustained
basis may lead to downward revision of its standalone profile.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: HMEL's liquidity is comfortable, with a cash
balance of around INR24 billion and secured undrawn sanctioned
working-capital facilities of INR62 billion at end-March 2020,
compared with long-term debt maturities of INR1.1 billion in FY21.
In addition, HMEL has good access to the domestic debt market,
where it has strong relationships with Indian banks, and the
offshore market, where it raised US dollar bonds in 2017 in 2019.
The company has also secured the debt required to fund capex for
its petrochemical project.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
INDIA DYE: CARE Lowers Rating on INR12cr LT Loan to B+
------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
India Dye Chem (IDC), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 12.00 CARE B+; Stable; Issuer not
Facilities cooperating; Revised from
CARE BB; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Short-term Bank 9.50 CARE A4; Issuer not
Facilities cooperating; Based on best
available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated February 5, 2019 placed the
rating of IDC under the 'issuer noncooperating' category as IDC had
failed to provide information for monitoring of the rating. IDC
continues to be noncooperative despite repeated requests for
submission of information through e-mails dated April 27, 2020,
April 28, 2020, and numerous phone calls. In line with the extant
SEBI guidelines, CARE has reviewed the rating on the basis of the
best available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
The ratings has been revised by taking into account
non-availability of requisite information and no due-diligence
conducted with banker due to non-cooperation by India Dye Chem with
CARE'S efforts to undertake a review of the rating outstanding.
CARE views information availability risk as a key factor in its
assessment of credit risk. Further, the ratings continue to remain
constrained owing by modest and fluctuating scale of operations
with modest proprietor's capital base, foreign exchange fluctuation
risk along with exposure to change in government policies, fortunes
linked to the performance of the product manufacturer. Highly
fragmented industry and high level of competition and Constitution
of the entity being a proprietorship firm The ratings, however,
continue to take comfort from experienced proprietor along with
well-established relationship with product manufacturers and
geographically diversified customer base, moderate profitability
margins, comfortable solvency position and moderate operating
cycle.
Detailed description of the key rating drivers
At the time of last rating on February 5, 2019 the following were
the rating weaknesses and strengths:
Key Rating Weaknesses
* Modest and fluctuating scale of operations with modest
proprietor's capital base: The scale of operations stood modest
marked by a total operating income and gross cash accruals of
INR64.14 crore and INR3.99 crore respectively during FY17 (FY
refers to the period April 1 to March 31). Further, the
proprietor's capital base stood modest at INR5.75 crore as on March
31, 2016. The modest scale limits the firm's financial flexibility
in times of stress and deprives it from scale benefits. Moreover,
the firm's total operating income has been fluctuating over the
past three years i.e. FY15-FY17. The total operating income
declined in FY16 over FY15; thereafter registered increase in FY17
mainly on account of higher quantity sold.
* Foreign exchange fluctuation risk along with exposure to change
in government policies: IDC meets 90% of its procurement in the
form of imports while it sells its finished products in domestic
market. With initial outlay in foreign currency and inflows in
domestic currency, the firm is exposed to volatility in foreign
exchange rates. However, the firm partially hedges its foreign
currency exposure through forward contracts. Nevertheless, for the
uncovered portion; the company's profitability margins are exposed
to volatility in foreign exchange. Moreover, any change in
government policies, either domestic or international is likely to
affect the firm's revenues. Earnings are also susceptible to strict
regulatory policies relating to tariff barriers (custom duty), non-
tariffs barriers (restriction on the quality of imports), anti-
dumping duties, international freight rates and port charges.
* Fortunes linked to the performance of the product manufacturer:
Performance of the firm is directly related to various factors such
as availability of the product from the manufacturer,
goodwill & image of the original product manufacturer in the market
etc. Any adverse performance on the part of the product
manufacturer will have direct impact upon the business of IDC.
* Highly fragmented industry and high level of competition: The
industry is highly competitive consisting of large number of
players in both organized and unorganized sector. Organized sector
consists of large and medium sized companies and unorganized sector
consists of numerous small scale units with heavy competition among
each other. Further, with presence of various players, the same
limits bargaining power which exerts pressure on its margins.
* Constitution of the entity being a proprietorship firm: IDC's
constitution as a proprietorship firm has the inherent risk of
possibility of withdrawal of the proprietor's capital at
the time of personal contingency and firm being dissolved upon the
death/retirement/insolvency of proprietor. Moreover,
proprietorship firms have restricted access to external borrowing
as credit worthiness of partners would be the key factors affecting
credit decision for the lenders.
Key rating strengths
* Experienced proprietor along with well-established relationship
with product manufacturers and geographically diversified customer
base: IDC was established in 1997 as a sole proprietorship firm.
The firm is managed by Mr. Bharat Arora, who has an experience of
around two decades in trading industry. IDC works an
agent/distributor for 32 global companies and has been associated
with these companies. This represents long and steady relationship
with each of these companies. Further, IDC supplies the products to
large base of domestic manufacturers which are located in Punjab,
Haryana, Delhi, Ahmedabad, Kolkata, Mumbai, Kanpur, Hyderabad,
Bangalore, Chennai etc. Diversified customer base mitigates the
risk of dependence on one source.
* Moderate profitability margins: The firm has large product
portfolio wherein the margin largely depends upon the category of
product sold in the respective year. The firm deals in the products
of reputed companies which provide competitive edge over other
players in the market. As a result, the profitability margins of
the firm marked by PBILDT and PAT remained moderate for the past
three financial years FY15-FY17. The PBILDT margin and PAT margin
stood at above 5% and 4% respectively for the past three financial
years i.e. FY15-FY17.
* Comfortable solvency position: The capital structure of the firm
stood comfortable on account of limited reliance on external
borrowings to meet working capital requirements. The overall
gearing stood at 1.45x as on March 31, 2017 Further, the coverage
indicators marked by interest coverage ratio and total debt to GCA
stood comfortable for the past three financial years i.e. FY15-
FY17 owing to moderate profitability levels with limited debt
levels. Interest coverage and total debt to GCA stood at 7.24x and
2.09x respectively for FY17.
* Moderate operating cycle: The company has moderate operating
cycle of 69 days. The firm maintains traded goods inventory to meet
immediate demand of its customers. Further, owing to high lead time
for procurement, the company maintain adequate inventory of around
2 months. IDC offer reasonable credit period of around 50-60 days
to its customers as majority of them are large size players who
possess high bargaining power. The firm had moderate payable period
due to high proportion of LCbacked creditors since the firm
purchases mostly through imports backed by LC (normally up to 90
days). The average credit period stood at 35 days for FY17.
Delhi based, India Dye Chem (IDC) was incorporated in November,
1997 by Mr. Bharat Arora. The firm is engaged in trading of resins,
additives, silica, thickeners, pigments, matting agents, dyes, etc.
which finds its application in coating, powder coating, cosmetics,
inks, paints, pharma, plastic and textile products. IDC acts as
distributors and agents in India for 32 global chemical
manufacturers. The firm sells these products to domestic
manufacturing companies.
JAGDAMBA FIBRES: Ind-Ra Moves B+ Issuer Rating to Non-Cooperating
-----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Jagdamba Fibres
Private Limited's 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 these ratings. The rating will now
appear as 'IND B+ (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating action is:
-- IN60 mil. Fund-based working capital limits migrated to non-
cooperating category with IND B+ (ISSUER NOT COOPERATING)
rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on May
2, 2019. Ind-Ra is unable to provide an update, as the agency does
not have adequate information to review the ratings.
COMPANY PROFILE
Established in 1987, Jagdamba Fibres manufactures textile yarn at
its 3000 metric-tons-per-annum facilities in Surat. Its operations
are managed by Mr. Sajjankumar Agarwal and Ved Prakash Goel.
JAGJIT ENTERPRISES: CARE Keeps B on INR13cr Debt in Not Cooperating
-------------------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Jagjit
Enterprises Private Limited (JEPL) continues to remain in the
'Issuer Not Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long term Bank
Facilities 13.00 CARE B; Stable; Issuer not
cooperating; based on best
available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from JEPL to monitor the ratings
vide e-mail communications/letters dated April 27, 2020, March 4,
2020, February 28, 2020, February 25, 2020, January 14, 2020, and
numerous phone calls. However, despite 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 best available information
which however, in CARE's opinion is not sufficient to arrive at a
fair rating. The rating on JEPL's bank facilities will now be
denoted as CARE B; Stable; 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 ratings.
Detailed description of the key rating drivers
At the time of last rating on March 20, 2019 the following were the
rating weaknesses and strengths:
Key Rating Weaknesses
* Moderate and fluctuating scale of operations with low
capitalization: The total operating income of the company has been
fluctuating in the range of INR34.27 crore to INR43.16 crore during
FY16-FY18 due to fluctuating demand from the end user market.
However, the scale of operations remained moderate with low
tangible net worth of INR2.03 crore as on March 31, 2018 which
limits the financial flexibility of the firm to meet any exigency.
* Low profit margins with net losses incurred in during FY16-18:
The profit margins of JEPL have shown fluctuating trend during past
three years i.e. FY16-FY18 on account of fluctuating material cost.
The PIBLDT margin remained in the range of 5.22%-7.28% during the
said period. On the other hand, owing to low PBILDT margin and high
finance and depreciation cost, the company has reported net losses
during FY16-FY18.
* Highly leveraged capital structure and weak debt coverage
indicators: The capital structure of JEPL stood leveraged with an
overall gearing stood at 8.09 times as on March 31, 2018, given the
high reliance on debt funds with small tangible net worth base
owing to low capitalization during past. Given this along with low
profitability, the debt coverage indicators also remained weak.
* Working capital intensive nature of operations: The operations
of JEPL are working capital intensive in nature due to funds
blocked in inventory and debtors. However, the majority of its
working capital requirements primarily met through external debt
and hence, utilization of working capital limits stood high.
* Weak Liquidity Position: The liquidity position is marked by
weak current ratio and quick ratio at 1.09 times and 0.66 times
respectively as on March 31, 2018 (1.05 times and 0.40 times
respectively as on March 31, 2017). Further, cash flow from
operating activities stood negative at INR0.14 crore as on March
31, 2018. The average fund based working capital limits remained
almost fully utilized during past 12 months ended February 2019.
Moreover, free cash and bank balance was INR0.39 crore as on March
31, 2018 (vis-à-vis INR0.54 crore as on March 31, 2017).
* Project completion and stabilization risk: The company is
planning to setup another factory for expansion of its operations
with the project cost of INR3.00 crore which will be primarily
funded through bank debt. The company has not yet incurred any cost
of the same and the bank debt for the same is also not yet tied up.
The project is expected to be completed and commence its operations
by July, 2019. Hence, the company exposed to timely completion and
stabilization risk associated to the same.
* Dependence on performance of TATA Motors and cyclicality of auto
industry & presence in highly competitive market: JEPL's sales are
significantly dependent on performance of TATA Motors Ltd and any
fall in demand for TATA vehicles will significantly impact the
growth of company. The heavy vehicle industry is inherently
vulnerable to the economic cycles and is highly sensitive to the
interest rates and fuel prices of petrol and diesel. A hike in
interest rates increases the costs associated with the purchase
leading to deferral. Fuel prices have a direct impact on the
running costs of the vehicle and any hike in the same would lead to
reduced disposable income of the consumers, influencing new car
purchase decision. The company thus faces significant risks
associated with the dynamics of the auto industry.
Key rating strengths
* Long track record of operations with highly experienced
management: JEPL possesses long track record of 25 years of
operations in manufacturing of auto components for heavy commercial
vehicles. Furthermore, overall operations of the entity are looked
after by Mr. Harprem Mann and Mr. Harmeet Mann having 12 years of
an experience in the industry.
* Reputed customer base albeit customer concentration: JEPL is
dealing with reputed customers' viz. TATA Motors Limited and Omax
Autos Limited from where the company garnered regular flow of
orders on continuous basis. However, the majority of the total
sales derive from these two customers constituting 70% of TOI
thereby indicating customer concentration risk. Nevertheless, the
same partially mitigates considering the company is Tier – 1
supplier for TATA Motors Limited and also Tier – 2 suppliers for
Omax Autos Limited. Moreover, the company is dealing with TATA
Motors since inception. Furthermore, there is a very articulated
criterion that is required to get a hold of as a supplier of an
automobile brand and the companies are constantly monitored by the
principal.
Jagjit Enterprises Private Limited (JEPL) was incorporated in July
18, 1994 and is engaged in manufacturing of auto components for
heavy commercial vehicles including Cross Members, Cross Member
Assembly, Bumper Cross Member Assembly, Assy Air Tanks, Power
Steering Brackets and Steering Gearbox Mounting. JEPL is promoted
by directors Mr. Harprem Mann, Mr. Harmeet Mann and Mrs. Satwinder
Kaur Mann. The company is Tier -1 supplier for TATA Motors Limited
(TATA), Lucknow and also tier -2 suppliers for Omax Autos Limited
which in turn sells to TATA. JEPL has manufacturing unit and
registered office situated at Lucknow, Uttar Pradesh.
K. MAGANLAL: Ind-Ra Lowers LT Issuer Rating to BB-, Outlook Stable
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has downgraded K. Maganlal
Impex's (KMI) Long-Term Issuer Rating to 'IND BB-' from 'IND BB+
(ISSUER NOT COOPERATING)'. The Outlook is Stable.
The instrument-wise rating action is:
-- INR110.00 mil. Fund-based limits downgraded with IND BB-
/Stable rating.
KEY RATING DRIVERS
The downgrade reflects a decline in KMI's modest EBITDA margin due
to the higher cost of raw material consumed and employee benefit
expenses. In FY19, the margin deteriorated to 1.46% (FY18: 1.86%)
and the return of capital employed came in at 8% (10%). The
downgrade also reflects the deterioration in the company's weak
credit metrics due to a fall in the absolute EBITDA with net
financial leverage (adjusted net debt/operating EBITDAR) of 7.15x
in FY19 (FY18: 5.00x) and gross interest coverage (operating
EBITDA/gross interest expense) of 1.70x (2.01x).
The ratings continue to be constrained by the partnership nature of
the firm.
The ratings also factor in KMI's continued medium scale of
operations with revenue of INR1,397.78 million in FY19 (FY18:
INR1,356.43 million). According to the management, KMI achieved
revenue of INR744.39 million till end-10MFY20 (provisional).
Liquidity Indicator - Stretched: The company's average working
capital utilization stood at 99.46% during the 12 months ended in
January 2020. Moreover, KMI's cash flow from operations remained
negative in FY19 due to an increase in its working capital
requirement. Cash and cash equivalents stood at INR4.23 million in
FY19 (FY18: INR13.64 million). The company witnessed an increase in
the working capital cycle to 61 days during FY19 from 58 days in
FY18.
The ratings continue to be supported by over two decades of
experience the partners in the diamond industry and the firm's
growing presence abroad.
RATING SENSITIVITIES
Negative: Any deterioration in the scale of operations and/or
further weakening in the credit metrics or deterioration in the
liquidity will be negative for the ratings.
Positive: A significant improvement in the scale of operations
along with a significant improvement in the credit metrics with the
interest coverage above 2.0x while maintaining/improving the
liquidity will be positive for the ratings.
COMPANY PROFILE
Incorporated in 2002, KMI is a partnership firm. It is engaged in
the import of rough diamonds and manufacturing and cutting and
export of polished diamonds. KMI is a member of the Gem Jewellery
Export Promotion Council. It has its registered office in Mumbai
and a factory in Gujrat. The firm is managed by Kalubhai Jivabhai
Dudhat, Maganlal Jivabhai Dudhat, and Dineshbhai Jivabhat Dudhat
and the entire shareholding lies within the family.
K.J.M. RICE: CARE Assigns B+ Rating to INR8.05cr LT Loan
--------------------------------------------------------
CARE Ratings has assigned rating to the bank facilities of K.J.M.
Rice Milling Industries (KJM), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank
Facilities 8.05 CARE B+; Stable Assigned
Detailed Rationale & Key Rating Drivers
The rating assigned to the bank facilities of KJM is constrained by
its constituted as partnership entity, small, albeit growing, scale
of operation along with low profitability margin, fragmented and
competitive nature of industry, regulated nature of industry, high
working capital intensity and exposure to vagaries of nature, and
with moderately weak debt coverage indicators. The rating, however,
derives strength from its experienced partners with satisfactory
track record of operations and close proximity to raw material
sources, stable demand outlook of rice and moderate capital
structure.
Rating Sensitivities
Positive Factors
* Sizeable increase in scale of operations from present level
(Total Operating Income above INR50 crore) of the entity
on a sustainable basis.
* Improvement in capital structure with overall gearing ratio
improving to below 1.00x on a sustainable basis.
Negative Factors
* Any sizeable de-growth in scale of operations from present level
(total operating income below INR10.00 crore) on a
sustained basis.
* Deterioration in overall gearing level beyond 2.00x on a
sustained basis.
Detailed Rationale & Key Rating Drivers
Key Rating Weaknesses
* Constitution as a partnership entity: K.J.M. Rice Milling
Industries, being a partnership entity, is exposed to inherent risk
of the partner capital being withdrawn at time of personal
contingency and entity being dissolved upon the death/insolvency of
the partner. Furthermore, partnership entities have restricted
access to external borrowing as credit worthiness of partners would
be the key factors affecting credit decision for the lenders.
* Small, albeit growing, scale of operation along with low
profitability margins: KJM is a small player vis-a-vis other
players in the rice milling and processing business manufacturing
industry marked by total operating income of INR12.56 crore
(Rs.9.76 crore in FY18) with a PAT of INR0.28 crore (Rs.0.23 crore
in FY18) and cash profit of INR0.35 crore (Rs. 0.33 crore in FY18)
in FY19. However, the total operating income of the firm witnessed
a CAGR growth of 53.80% during the period (FY17 to FY19) on account
of addition of new customers resulting out of venturing into new
markets along with stable demand of agro products during the said
period. PBILDT level has improved from INR0.50 crore in FY18 to
INR0.60 crore in FY19.PAT level has also increased from INR0.23
crore in FY18 to INR0.28 crore in FY19 keeping in line with
increase in total operating income. The total tangible net worth
remained small at INR6.38 crore as on March 31, 2019. The small
size restricts the financial flexibility of the entity in terms of
stress and deprives it from benefits of economies of scale. Due to
its relatively small scale of operations, the absolute profit
levels of the entity also remained low. Further, the entity has
booked revenue of INR22.59 crore during 11MFY20. The operating
profit margin has declined marginally by 32 bps in FY19 over FY18
mainly on account of higher increase in operational cost during the
said period. Moreover, the same remained low at 4.76% (operating
margin in FY18: 5.08%) in FY19. Furthermore, the PAT margin of the
firm also declined marginally by 19 bps mainly on account of higher
interest expenses and continues to remain low at 2.20% (net profit
margin in FY18: 2.39%) during FY19.
* Fragmented and competitive nature of industry: The commodity
nature of the product makes the industry highly fragmented, with
numerous players operating in the unorganized sector with very less
product differentiation. There are several small scale operators
which are not into end-to-end processing of rice from paddy,
instead they merely complete a small fraction of processing and
dispose-off semiprocessed rice to other big rice millers for
further processing.
* Regulated nature of industry: The Government of India (GOI)
decides a minimum support price (MSP - to be paid to paddy growers)
for paddy every year limiting the bargaining power of rice millers
over the farmers. The MSP of paddy was increased during the crop
year 2019-20 to INR1815/quintal from INR1750/quintal in crop year
2018-19. Given the market determined prices for finished product
vis-à-vis fixed acquisition cost for paddy, the profitability
margins are highly volatile. Such a situation does not augur well
for the entity, especially in times of high paddy cultivation.
* High working capital intensity and exposure to vagaries of
nature: Rice milling is a working capital intensive business as
the rice millers have to stock rice by the end of each season till
the next season as the price and quality of paddy is better during
the harvesting season. Also, paddy cultivation is highly dependent
on monsoons, thus exposing the fate of the entities' operation to
vagaries of nature. Accordingly, the working capital intensity
remains high leading to higher stress on the financial risk profile
of the rice milling units. Furthermore, the average utilization of
working capital remained around 40% during the last 10 months ended
February, 2020. Operating cycle of the firm remained moderately
high on account of high inventory period days as on March 31, 2019
as the firm has to stock raw materials for smooth production in
near future.
* Moderately weak debt coverage indicators: The debt coverage
indicators of the entity remained moderately weak marked by
satisfactory interest coverage of 4.98x (7.74x in FY18) and high
total debt to GCA of 20.25x (18.72x in FY18) in FY19. The interest
coverage ratio has deteriorated in FY19 over FY18 mainly on account
of higher increase in interest expenses vis-à-vis increase in
PBILDT level.
Key Rating Strengths
* Experienced partners along with satisfactory track record of
operations: The firm was established in the year 2014, thus,
having a satisfactory track record of operations of almost six
years. This apart, MD Golam Kabira Mallick (aged 63 years) has more
than three decades of experience in agro based business and he
looks after the day-to-day activities of the business of the
entity. This apart, the other partners MD Golam Jakaria Mallick
(aged 60 years) and MD Golam Mustafa Mallick (aged 58 years ) also
having three decades of experience in rice milling business and
they looks after the overall management of the entity, with
adequate support from a team of experienced personnel.
* Close proximity to raw material sources and stable demand outlook
of rice: KJM plant is located in Birbhum District, West Bengal
which is in close proximity to the paddy growing areas of the
state. The entire raw material requirement is met locally from the
farmers helping the entity to save simultaneously on transportation
cost and paddy procurement cost. Further, rice being a staple food
grain with India's position as one of the largest producer and
consumer, demand prospects for the industry is expected to remain
good in near to medium term. Rice, being one of the primary food
articles in India, demand is high throughout the country and with
the change in life style and health consciousness; by products of
the same like rice bran oil etc. are in huge demand.
* Moderate capital structure: The capital structure of the firm
remained moderate mainly on account of moderate debt levels as
against moderate capital base as on March 31, 2019. The capital
structure of the firm deteriorated marginally as on March 31, 2019
marked by long term debt equity and overall gearing ratio of 0.96x
(FY18: 0.88) and 1.12x(FY18: 1.04), respectively.
Liquidity: Stretched
Liquidity position of the entity remained stretched as marked by
its high repayment obligation vis-àvis cash profit accrued in FY19
and low cash balance of INR0.08 crore as on March 31, 2019.
However, the average utilization of working capital limit remained
low at 40% during last 12 month ended February, 2020. The firm does
not have any capex plan in near future.
West Bengal based K.J.M. Rice Milling Industries was established in
the year 2014 by Mallick family with an objective to enter into
rice milling and processing business. The manufacturing unit of the
firm is located at Bribhum, West Bengal with an installed capacity
of 23,040 metric tons per annum. The firm procures its raw material
i.e. paddy from local farmers and traders. This apart the firm is
also engaged in custom milling on behalf of government of West
Bengal. The firm is managed by all the three partners with adequate
support from a team of experienced personnel.
KUNWAR DEVENDRA: CARE Lowers Rating on INR10.25cr Loan to B-
------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Kunwar Devendra Singh Cold Storage and Ice Factory Private Limited
(KDS), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 10.25 CARE B-; Stable; Issuer not
Facilities cooperating; Revised from
CARE B; ISSUER NOT COOPERATING;
on the basis of Best available
information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from KDS to monitor the ratings
vide e-mail communications/letters dated March 5, 2020, March 14,
2020, March 16, 2020, March 17, 2020, April 27, 2020 and numerous
phone calls. However, despite 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 best available information which
however, in CARE's opinion is not sufficient to arrive at a fair
rating. The rating on Kunwar Devendra Singh Cold Storage and Ice
Factory Private limited bank facilities will now be denoted as CARE
B-; Stable; 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 ratings.
The rating has been revised by taking into account non-availability
of information due to non-cooperation by Kunwar Devendra Singh Cold
Storage and Ice Factory Private limited with CARE'S efforts to
undertake a review of the rating outstanding. CARE views
information non-availability risk as a key factor in its assessment
of credit risk.
Detailed description of the key rating drivers
At the time of last rating on April 24, 2019 the following were the
rating weaknesses and strengths:
Detailed description of the key rating drivers
Key Rating Weaknesses
* Short track record with small scale of operations and
stabilization risk associated with newly setup debt funded unit:
The firm has incurred expenditure of INR6.34 crore as on date
February 2019 for setting up of unit in and the same has been
funded through term loan of INR6.29 crores, INR0.5 crores through
capital contribution in form of equity share. Partial operations of
the cold storage started in December 2018 with three chambers and
full-fledged operations commenced in January 2019. Being a new
unit, the stabilization of the unit remains to be seen. During the
initial phases of operations, the capital structure of the firm is
expected to remain leveraged characterized by debt funded capex and
low net worth base.
* Leveraged capital structure: The company's Networth was stood
low at INR0.05 crore as on March 31, 2018. The small scale limits
the company's financial flexibility in times of stress and deprives
it from scale benefits. The capital structure of the company stood
leveraged marked by debt to equity & overall gearing ratio of
25.09x and 25.09x respectively as on March 31, 2018 on account of
debt funded capex undertaken and dependence on external borrowings
to meet working capital requirements.
* Business susceptible to the vagaries of nature: Agro-based
industry is characterized by its seasonality, as it is dependent on
the availability of raw materials, which further varies with
different harvesting periods. Being agro commodities, these are
perishable in nature and the price of raw materials is dependent on
their availability, which is further dependent on the vagaries of
nature (agro-climatic conditions). Any adverse impact on the crop
production will adversely affect the profitability as well as
growth prospects for the firm.
* Fragmented nature of the industry: KDS's business risk profile
is constrained on account of exposed to competition from other
regional players operating in warehousing industry. KDS is
operating in such an industry which is fragmented in nature and has
limited entry and exit barrier. This leads to limited bargaining
power with customers and restrict to charge additional rent, which
constraints its scale of operations.
Key Rating Strengths
Experienced directors and management KDS's operations are currently
being managed by its Directors all are family members, where Mr.
Devendra Singh Yadav is post graduate by qualification and he is
also an active politician. As by the age of 67 years he has vast
experience in public dealing. Ms. Tanu Yadav daughter of Mr.
Devendra Singh Yadav is B-tech graduate. Apart from the KDS, all
the directors are already involved in same business in other
partnership firms i.e. Urmila Cold Storage and Ice Factory. He is
well supported by his manager, Mr. Vishal Garg.
* Positive outlook for the Indian cold chain industry: The
warehousing and cold chain industry is emerging as a fast-growing
business sector in India, with developments in the food processing
sector, organized retail and government initiatives driving growth.
Furthermore, with rapid growth of organized retail and
manufacturing sector, the need for warehousing is increasing. The
government is taking steps to set up cold chain infrastructure and
has introduced schemes such as capital investment subsidy from the
National Horticulture Board (NHB), the National Horticulture
Mission (NHM) and the Ministry of Food Processing Industries
(MoFPI). Apart from subsides, like credit-linked capital subsidy
scheme for construction of cold storages and go-downs, the
government is also providing consultancy services to help
connecting farmers to market & to avoid heavy losses & wastes of
food products.
Hathras (U.P) based Kunwar Devendra Singh Cold Storage And Ice
Factory Private Limited (KDS) is a Private Limited Company and was
established in July, 2017 and commenced operation from December
2018, and is currently being directed by Kuvanr Devendra Singh
Yadav, Neeraj Yadav, Vashu Yadav, Samarth Yadav and Tanu yadav with
the help of Vishal Garg(Manager).
LMJ LOGISTICS: Ind-Ra Lowers LongTerm Issuer Rating to 'BB+'
------------------------------------------------------------
India Ratings and Research (Ind-Ra) has downgraded LMJ Logistics
Limited's (LMJLL) Long-Term Issuer Rating to 'IND BB+ (ISSUER NOT
COOPERATING)' from 'IND BBB+ (ISSUER NOT COOPERATING)'. The issuer
did not participate in the rating exercise despite continuous
requests and follow-ups by the agency. Thus, the rating is based on
the best available information. Therefore, investors and other
users are advised to take appropriate caution while using these
ratings.
The instrument-wise rating action is:
-- INR869.93 mil. Working capital limits downgraded with IND BB+
(ISSUER NOT COOPERATING) / IND A4+ (ISSUER NOT COOPERATING)
rating.
Note: ISSUER NOT COOPERATING: Issuer did not cooperate; based on
the best available information
KEY RATING DRIVERS
The downgrade reflects lower financial transparency, with the
non-availability of financials in the public domain.
LMJ Logistics did not participate in the rating exercise despite
continuous requests and follow-ups by the agency. The company has
not provided information such as audited financials, interim
financials, utilization reports, and key details required for the
surveillance exercise.
COMPANY PROFILE
Incorporated in 1992, LMJ Logistics is engaged in the trading of
agricultural and non-agricultural commodities. In the agro-segment,
the company trades commodities such as rice, wheat, maize, peas,
crude palm oil, crude sunflower oil, and peas. In addition, it
provides warehousing and logistics services.
MDH TRUCKS: CARE Keeps C Rating on IN10cr Loans in Not Cooperating
------------------------------------------------------------------
CARE Ratings said the rating for the bank facilities of MDH Trucks
Private Limited (MDHTPL) continues to remain in the 'Issuer Not
Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 10.00 CARE C; Issuer not cooperating;
Facilities Based on best available
information
Short-term Bank 2.00 CARE A4; Issuer not cooperating;
Facilities Based on best available
information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated February 20, 2019, placed
the ratings of MDHTPL under the 'issuer non-cooperating' category
as company had failed to provide information for monitoring of the
rating. The company continues to be non-cooperative despite
repeated requests for submission of information through e-mails,
phone calls and email dated April 20, 2020. In line with the
extant SEBI guidelines, CARE has reviewed the rating on the basis
of the best available information which however, in CARE's opinion
is not sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
At the time of last PR dated February 20, 2019, the following were
the rating strengths and weaknesses
Key Rating Weaknesses
* Small scale of operations with decrease in total operating income
and low networth base: The company's scale of operations were
small in nature as marked by a TOI of INR9.95 crore in FY18 and low
networth base of INR2.93 crore in FY18. The TOI of the company
decreased from INR64.09 crore in FY17 to INR9.95 Crore in FY18 Thin
and fluctuating profitability margins during review period The
PBILDT margin and PAT margin though improved from 3.83x and 0.21x
as on march 31, 2017 to 14.11x and 0.58x as on march 31, 2018
respectively but still remained thin.
* Leveraged capital structure and weak debt coverage indicators
during review period: Thecapital structure marked by overall
gearing ratio stood leveraged however improved from 4.60x as on
march 31, 2017 to 3.00x as on march 31, 2018 due to lower
utilization of working capital.
* Working capital intensive nature of operations: The operating
cycle increased from 73 days in FY17 to 440 days in FY18.
Key Rating Strengths
* Experience of the promoters for more than two decades in
auto-dealership business: MDH Trucks Private Limited (MDHTPL) was
promoted by Mr.S.MD.Naveed (Managing Director) and Mrs. S.Feroza
(Director). Mr.S.MD.Naveed is a qualified graduate (B.com) and has
more than 25 years of experience in auto-dealership industry. Mrs.
S.Feroza is a qualified graduate (B.com) and has more than 20 years
in auto-dealership industry.
* Stable outlook of automobile industry: The automotive industry
in India is one of the largest in the world, following a growth of
2.57 per cent over the last year. The automobile industry accounts
for 7.1 per cent of the country's gross domestic product (GDP). The
Two Wheelers segment, with 81 per cent market share, is the leader
of the Indian Automobile market, owing to a growing middle class
and a young population. Moreover, the growing interest of companies
in exploring the rural markets further aided the growth of the
sector. The overall Passenger Vehicle (PV) segment has 13 per cent
market share. India is also a prominent auto exporter and has
strong export growth expectations for the near future. In addition,
several initiatives by the Government of India and the major
automobile players in the Indian market are expected to make India
a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in
the world by 2020. Almost Self-governing cars are predicted to be
on the streets by 2020. More than half the cars on the streets are
going to be powered by diesel by 2020.High Performance Hybrid cars
are likely to gain greater popularity among consumers. The Indian
automobile industry has a prominent future in India. Apart from
meeting the advancing domestic demands, it is penetrating the
international market too.
Andhra Pradesh based, MDH Trucks Private Limited (MDHTPL) was
incorporated in the year 2011 as a Private Limited Company by
Mr.S.MD.Naveed (Managing Director) and Mrs. S.Feroza (Director).
The operation of the company started in the year 2012. The company
is an authorized dealer of Tata Motors Limited. The Company is
engaged in sale of new vehicles and spare parts as well as
servicing of vehicles. The vehicles sold by MDHTPL are small
commercial vehicles (Tata Ace, Tata Magic, Tata xenon etc.), medium
and heavy vehicles (Star bus, City ride, LPT'S etc.).
MEGHAAARIKA IMPEX: CARE Lowers Rating on INR15cr Loan to 'B'
------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Meghaaarika Impex Private Limited, as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 15.00 CARE B; Stable; Issuer not
Facilities cooperating; Revised from
CARE BB-; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Short-term Bank 80.00 CARE A4; Issuer not
Facilities cooperating; Based on best
available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from Meghaaarika Impex Private
Limited to monitor the ratings vide e-mail communications/letters
dated April 16, 2020, April 7, 2020, April 3, 2020, April 1, 2020,
March 31, 2020, March 23, 2020, March 6, 2020, March 4, 2020, March
2, 2020, February 28, 2020, February 19, 2020, February 14, 2020,
February 7, 2020, February 5, 2020, February 3, 2020, January 31,
2020, January 21, 2020, January 15, 2020 and numerous phone calls.
However, despite 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 best available information which however, in CARE's
opinion is not sufficient to arrive at a fair rating. The rating on
Meghaaarika Impex Private Limited'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(s).
The ratings have been revised on account of subdued financial
performance during FY19 (refers to period April 1 to March 31) with
losses during the year. The ratings continue to be constraint by
working capital intensive nature of operations and weak financial
risk profile marked by high gearing. The ratings also factor in
MIPL's high customer concentration risk and its
exposure to risks related to fluctuations in crude oil prices as
well as exchange rates. However, the ratings derive strength from
extensive experience of promoters and presence of group companies
in related business.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating(s).
Detailed description of the key rating drivers
At the time of last rating on April 3, 2019 the following were the
rating strengths and weaknesses (updated for the information
available from Ministry of Corporate Affairs):
Key Rating Weaknesses
* Moderate operational income albeit low profitability margins: The
total operating income of the company stood moderate at INR277.19
crore during FY19 (refers to period: April 1 to March 31) (PY:
INR239.24 crore). The PBILDT margin stood negative at 0.53% in FY19
(PY: 2.10%) due to volatility in the price of traded goods.
* Working capital intensive nature of operations with modest
liquidity profile: The company's operating cycle improved however
stood elongated at 53 days during FY19 (PY: 84 days) which was
majorly on account of decrease in collection period to 118 days in
FY19 (PY: 165 days).The creditor days decreased to 69 days in FY19
(PY: 84 days). The company's average fund based working capital
utilization remained high during the year.
* Weak financial risk profile: The company's overall gearing
improved to 1.68x as on March 31, 2019 (PY: 3.79x) on account of
lower total debt. Its total debt/GCA stood at-3.00 during FY19 (PY:
40.44x) due to losses in FY19. MIPL's interest coverage ratio stood
at -0.24x in FY19 (PY: 2.37x).
* High customer concentration risk: The revenue profile of the
company is concentrated with top 5 customers contributing more than
90% of the total sales in FY18 leading to customer concentration
risk. Any change in procurement policy of the major customers may
adversely impact the business of the company. However, the
company's long standing association with these customers mitigates
such risks to an extent.
* Volatility in prices of traded goods and foreign exchange
fluctuation risk: The prices of the products traded by the company
are linked to crude oil prices and are hence subject to volatility.
Furthermore, since the company imports goods and sells them in the
domestic market, it is exposed to foreign exchange fluctuation risk
as well. To safeguard itself, the company undertakes majority of
its sales on a back to back basis. However, it remains exposed to
the risk related to volatility in the foreign exchange fluctuation
in the absence of any concrete hedging policy.
Key Rating Strengths
* Experienced promoters and long track record of the group: MIPL
is a closely-held company owned by Sethi family. The day to day
operations of the company are looked after by Mr S K Sethi and his
son Mr Nikhil Sethi, who are also the promoters of PCL Oil and
Solvents Limited and Ritzy Chemicals Private Limited. The group has
an extensive track record of more than three decades in
manufacturing and trading of industrial chemicals/plasticizers.
* Well established position of the group: The promoters have a
number of companies operating in the plasticizers/plastic additives
industry and enjoy well established position in the market. As a
result of the long-track record of the promoters in the industry,
the group enjoys established relationships with customers as well
as suppliers resulting in steady demand for the products traded or
manufactured by group entities. MIPL started its operations in
January 2014 and therefore has a short track record of operations.
MIPL is closely-held company incorporated in April 2011 by Sethi
family. The company started its operations in January 2014 and is
engaged in trading of industrial chemicals/plasticizers like
polyvinyl chloride (PVC) resin, phthalic anhydride, 2-ethyl hexanol
(2EH), Iso-Butyl Alcohol (IBA), melamine, acetone, chlorinated
paraffin wax etc. These chemicals are crude oil derivatives and
find application in wood polish, printing ink, paints, washing PVC
medical and surgical products, wires & cables, non-toxic food
containers, erasers, leather cloth, perfumes, vinyl flooring,
footwear and PVC shower curtain etc. The chemicals are
imported/purchased from overseas suppliers based out of USA, Korea,
Singapore, Malaysia and are sold to domestic customers.
MITRA GUHA: CARE Lowers Rating on INR2.50cr LT Loan to B+
---------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Mitra Guha Builders (India) Company, as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 2.50 CARE B+; Stable; Issuer not
Facilities cooperating; Revised from
CARE BB-; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Long Term/Short 13.20 CARE B+; Stable/CARE A4;
Term Bank Issuer not Cooperating;
Facilities Revised from CARE BB-;
Stable/CARE A4 on the basis
of best available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from Mitra Guha Builders (India)
Company to monitor the ratings vide e-mail communications/letters
dated December 26,2019, January 13,2020, February 06,2020, February
26,2020, February 29,2020, March 17,2020, March 27,2020 and
numerous phone calls. However, despite 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 best available information
which however, in CARE's opinion is not sufficient to arrive at a
fair rating. The rating on Mitra Guha Builders (India) Company 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 ratings.
The rating has been revised by taking into account non-availability
of information due to non-cooperation by Mitra Guha Builders
(India) Company with CARE'S efforts to undertake a review of the
rating outstanding. CARE views information nonavailability risk as
a key factor in its assessment of credit risk.
Detailed description of the key rating drivers
At the time of last rating on May 3, 2019 the following were the
rating weaknesses and strengths:
Detailed description of the key rating drivers
Key rating weaknesses
* Small and fluctuating scale of operation: MGBC is a small
regional player involved in executing civil contracts. The ability
of the firm to scale up to larger-sized contracts having better
operating margins is constrained by its comparatively small capital
base of INR6.17 crore as on March 31, 2018 and total operating
income of INR47.40 crore in FY18 (refers to the period April 1 to
March 31). The small scale of operations in a competitive industry
limits the bidding capability, pricing power and benefits of
economies of scale. During FY19 (based on provisional results), the
firm has achieved the total operating income of INR44.57 crore
owing to lower number of orders executed.
* Low profitability margins and weak debt coverage indicators: The
profitability margins of the firm have remained low and declining
during last three financial years (FY16-FY18); as the profitability
largely depends upon nature of contract executed. The PBILDT margin
of the firm declined and stood at 1.95% in FY18 as against 5.51% in
FY17 on account of execution of few orders which had lower
profitability margins along with higher cost incurred due to delay
in project execution. Similarly, PAT margin of the firm declined
and stood at below unity at 0.28% in FY18. However, the margins has
shown improvement in FY19 (Prov.) as marked by PBILDT and PAT
margin of 3.15% and 0.68% respectively as there was decline in the
cost incurred for raw material. Further, the debt service coverage
indicators of the firm remained modest as marked by interest
coverage and total debt to GCA stood at 1.86x and 12.85x,
respectively for FY18 which improved and stood at 4.02x and 5.82x
respectively for FY19 (Prov.) owing to decline in debt levels.
* Highly competitive industry: MGBC faces direct competition from
various organized and unorganized players in the market. There are
number of small and regional players and catering to the same
market which has limited the bargaining power of the firm and has
exerted pressure on its margins. Further, the award of contracts
are tender driven and lowest bidder gets the work. Hence, going
forward, due to increasing level of competition and aggressive
bidding, the profits margins are likely to be under pressure in the
medium term.
* Business risk associated with tender-based orders: The firm
majorly undertakes private and government projects, which are
awarded through the tender-based/bidding system. The firm is
exposed to the risk associated with the tender-based business,
which is characterized by intense competition. The growth of the
business depends on its ability to successfully bid for the tenders
and emerge as the lowest bidder. Further, any changes in the
government policy or government spending on projects are likely to
affect the revenues of the firm.
* Constitution of the entity being a partnership firm: MGBC's
constitution being a partnership firm has the inherent risk of
possibility of withdrawal of the partner's capital at the time of
personal contingency and firm being dissolved upon the
death/retirement/insolvency of partner. Moreover, partnership firms
have restricted access to external borrowing as credit worthiness
of partners would be the key factors affecting credit decision for
the lenders.
Key Rating Strengths
* Experienced management and technically qualified team coupled
with long track record of operations: MGBC is a family run
business. Mr. Indranil Dey Sarkar, Mr. Tarit Dey Sarkar, Mr. Suhas
Paul are the partners of the firm and they collectively look after
the overall operations of the firm. They have considerable
experience in the industry through their association with this
entity. Besides experienced management, MGBC also has a
well-qualified and experienced team of engineers and other
professionals having more than a decade of experience in their
requisite fields. The firm is having extensive track record in this
business which has resulted in long term relationships with both
suppliers and customers.
* Healthy though concentrated order book position: The unexecuted
order book of the firm as on April 01, 2019 stood at INR61.58 crore
which is equivalent to ~1.38x the total operating income achieved
in FY19 (Prov.), thereby giving short to medium term revenue
visibility. However, the present unexecuted order book is
concentrated towards single contract from Air Force Naval Housing
Board, New Delhi. Hence, effective and timely execution of the
orders has a direct bearing on the margins.
* Moderate capital structure and modest liquidity indicators: The
capital structure of the firm improved and stood moderate as on the
balance sheet date March 31, 2018 on account of lower mobilization
and secured advances and lower utilization of working capital
limits as on balance sheet date. Overall gearing stood at 1.13x as
on March 31, 2018 as against 2.13x as on March, 2017. The capital
structure remained moderate as marked by overall gearing ratio of
0.88x as on March 31, 2019 owing to repayment of vehicle loan, term
loan and lower mobilization advances, Further, the liquidity
indicators stood modest as marked by current and quick ratio of
1.42 times and 1.12 times as on March 31, 2018. The net cash from
operating activities stood positive at INR8.78 crore for FY18.
* Moderate operating cycle: The operating cycle of the firm stood
moderate at 32 days for FY18 and negative 17 days in FY19 (Prov.).
The improvement was mainly on account of improvement in inventory
holding period. The firm maintains minimum inventory in the form of
raw materials at different sites for smooth execution of contracts.
Besides this, the inventory is also in the form of work in progress
at different sites on account of procedural delays involved in the
certifications/validation of the invoices for the contracts
executed. Entailing, all leads to inventory days of 73 days for
FY18, which improved and stood at 44 days for FY19 (Prov.). The
firm raises bills on milestone basis i.e. on the completion of
certain percentage of work i.e. 5% and certain portion of the same
is kept as retention money (ranging from 2-5% of bill amount) and
due to procedural delays, the firm receives payment in ~2 months
(maximum) by deducting certain percentage of bill raised in the
form of retention money, which gets refunded after completion of
contract. Further, the firm receives credit period of around 2-3
months from its suppliers on account of long standing relationship
with them. The average utilization of working capital limits
remained almost fully utilized for past 12 months ending March,
2019.
Kolkata (West Bengal) based Mitra Guha Builders (India) Company
(MGBC) was established in April, 1992 as a partnership firm and is
currently managed by Mr Indranil Dey Sarkar, Mr Tarit Dey Sarkar,
Mr Suhas Paul sharing profit and losses equally. The firm is 'A'
class contractor and is engaged in civil construction works such as
construction of roads, commercial & residential buildings,
bungalows/ villas and entire finishing activities for buildings
including plumbing, sewerage system, water drainage, internal
electrification & related development works, etc. mainly for
private companies and government departments based in Delhi, Uttar
Pradesh, West Bengal, Karnataka, Punjab, Haryana & Rajasthan. In
order to get the business, firm has to participate in tenders and
bids floated by private and government companies.
MODI PROJECTS: Ind-Ra Moves BB- Issuer Rating to Non-Cooperating
----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Modi Projects
Limited's 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 these ratings. The rating will now appear as 'IND
BB-(ISSUER NOT COOPERATING)' on the agency's website.
The instrument-wise rating actions are:
-- INR40 mil. Fund-based working capital limits migrated to non-
cooperating category with IND BB- (ISSUER NOT COOPERATING)
rating; and
-- INR238 mil. Non-fund-based working capital limits migrated to
non-cooperating category with IND A4+ (ISSUER NOT
COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on May
8, 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 1960 as Modi Construction Company by Mr. Narayan
Prasad Modi, Modi Projects was reconstituted as a limited company
in 1983. It undertakes projects on a turnkey basis.
MSRM ORGANICS: CARE Lowers Rating on INR7.50cr Loan to B-
---------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of MSRM
Organics Private Limited (MSRMOPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 7.50 CARE B-; Stable; Issuer not
Facilities cooperating; Revised from
CARE B; ISSUER NOT COOPERATING;
on the basis of best available
information
Short-term Bank 1.50 CARE A4; Issuer not
Facilities cooperating; on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated March 5, 2019, placed the
ratings of MSRM Organics Private Limited under the 'issuer
non-cooperating' category as company had failed to provide
information for monitoring of the rating. The company continues to
be non-cooperative despite repeated requests for submission of
information through e-mails, phone calls and email dated January
2020 to April 24,2020 .In line with the extant SEBI guidelines,
CARE has reviewed the rating on the basis of the best available
information which however, in CARE's opinion is not sufficient to
arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
At the time of last rating on March 5, 2019 the following were the
rating strengths and weaknesses:
Key Rating Weaknesses
* Financial closure yet to be achieved: The cost of the project is
INR10.89 crore of which the promoters have infused around INR2
crore in the business for purchasing of land and construction of
factory. The company is looking forward to avail bank borrowings
comprising of term loan of INR5 crore to fund the construction of
shed and purchase of plant & machinery and working capital facility
comprising of cash credit & foreign letter of credit of INR2.5
crore and INR1.5 crore to fund the working capital requirements. As
on date, the funding pattern has been finalized by the promoters,
however the proposed term loan is yet to be sanctioned by the bank
and hence financial closure of the project has not yet been
completely achieved by the company.
* Implementation risk towards stabilization of operations: The
directors of the company are setting up an organic fertilizer plant
with a total estimated cost of INR10.89crore which is to be funded
through a bank term loan of INR5crore and rest of INR2crore and
INR3.89 crore from promoters own funds and unsecured loans from
related parties respectively. As on December 14, 2017, the company
had incurred expenses of INR2.28 crore which is around 21% of the
total project cost towards land purchase, development, construction
of factory, licenses & approvals and the same was funded through
promoter's own funds and a part through unsecured loans. The
commercial operations of the company are expected to start from
April 2018. Therefore, project implementation risk exists towards
stabilization of operations as only 21% of the project has been
completed till date. Furthermore, the company has to complete the
project without any cost overrun and time overrun which will remain
critical from credit perspective.
* Profitability margins susceptible to fluctuations in raw material
prices and foreign exchange rates: The company would be importing
its main raw material i.e. organic granules from Vietnam via the
Krishnapatnam port located near the plant location. Due to the
significant amount of imports, it is exposed to foreign currency
fluctuation risk which would impact the profitability margins of
the company. Furthermore, being a new player in the segment, the
company possesses limited pricing power and thus is exposed to
volatility in the raw material prices.
* Presence in highly fragmented and competitive industry: The
company is operating in highly competitive and fragmented industry
where the company witnesses intense competition from both the
organized and largely unorganized players. This fragmented and
highly competitive industry results into price competition thereby
affecting the profitability margins of the companies operating in
the industry.
Key Rating Strengths
* Experienced management: Mr.Ravinder Rao Polsani, the promoter of
the company has around three decades of prior experience in
agriculture field. He is also the chairman and managing director
of Taaza International Limited. Furthermore, the top management is
assisted by second line of management having adequate experience in
the industry. Mr.Polsani Rama Rao (graduate in agriculture), Mr.
Raj Kumar Agarwal (post graduate in agriculture) and Mrs. Geetha
Das (post graduate in management) who are having around 3 decades
of experience would be leading the product development, business
development and corporate sales departments respectively.
* Operational synergy from associate company: Taaza International
Limited, a public limited company listed on BSE, located at
Hyderabad was incorporated in 2001. The company is engaged in
trading of bio pesticides, bio fertilizers and pulses, as well as
building materials. The company's segments include bio-pesticides,
bio-fertilizers; FMCG, groceries & pulses; computers & peripherals,
and building material. Mr Ravinder Rao Polsani is the chairman and
managing director of this company as well. As per the audited
financials, the net sales stood at INR11830 lakhs in FY17.
Operational support in terms of functionality will be provided by
Taaza International Limited to aid the business operations of
MSRMOPL.
* Location advantage of the plant: The plant unit of the company
is located in SPSR Nellore district in Andhra Pradesh, which is at
close vicinity to the Krishnapatnam port. The company would be
importing organic granules from Vietnam via the Krishnapatnam port.
The presence of the port near the plant location will enable the
company to procure the raw materials easily. This will cut down the
transportation costs and will lower the expenses to be incurred by
the company.
* Contract agreement with an established company albeit customer
concentration risk: The company has a contract agreement with an
established company Pasura Crop Care Private Limited (PCC) to
manufacture and sell its products. PCC has been in the crop growth
industry in India serving farmers for over two decades having
products ranging from plant protection, nutrients to growth
enhancers. PCC has presence in over 10 most critical agri states
with a base of over 2000 retail channel partners, already marketing
over 100 brands. MSRM Organics Private Limited's entire production
is assured to be bought by PCC to distribute amongst its channel
network. This said contract would be for at least a year and would
be extended if needed by the company. This limits the revenue
diversity; however the company is looking forward to diversify its
revenue sources in the future years by adding the general customer
base also i.e. farmers and dealers to its customer portfolio.
* Stable demand outlook for organic fertilizers industry: Rapid
development of organic agriculture coupled with augmenting demand
for organic food is expected to increase the demand for organic
fertilizers. The market for organic fertilizer has witnessed steady
growth in the recent past owing to government support and favorable
perception among farmers and end-users. As compared to chemical
fertilizers, the production of organic fertilizers has less
investment and high benefits. This factor is expected to augment
the organic fertilizers market over the forecast period. Owing to
the eco-friendly nature of organic fertilizers, governments in many
countries have subsidised the prices, making it easier for farmers
to use it. Government and environmental policies minimizing wastage
and reduction in the consumption of non-biodegradable raw materials
has led to an increased production of organic fertilizers.
Regulations are also emphasizing more on human safety, so are
supporting markets like organic fertilizers to reduce risk to human
life and the environment.
MSRM Organics Private Limited (MSRMOPL) was established in April,
2017 by Mr Ravinder Rao Polsani and Mr. Sai Shashank Pabbathi to
manufacture bio fertilizers at its plant located at SPSR Nellore
district in Andhra Pradesh. The organic agri inputs along with
nutrients that are extensively used by the farmers in their crops
for increasing the crop productivity would be manufactured by the
company in three different forms: liquid, granules and powders. The
installed capacity of the plant for liquid, powders and granules is
1500,000 litres, 90,000 Kgs and 5000,000 Kgs per annum
respectively.
The commencement of production would be from April 2018. The
factory land which is of an area of 1.50 acres costing INR0.47
crore has already been purchased in the name of the company. The
various licenses and approvals such as factory plan, electricity
connection from Andhra Pradesh Southern Power Distribution Company
Limited (APSPDCL) and Panchayath NOC has been issued and the
company has applied for NOC from pollution control board and fire
department which is still under process. The cost of the project
(setting up the plant) is INR10.89 crore of which the promoters
have infused around INR2 crore as equity in the business for
purchasing of land and construction of building and would be
bringing in unsecured loans to the tune of INR3.89 crore. The rest
would be funded by the bank borrowings comprising of term loan of
INR5 crore.
NAINITAL MOTORS: Ind-Ra Lowers Issuer Rating to BB, Outlook Stable
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has downgraded Nainital Motors
Private Limited's (NMPL) Long-Term Issuer Rating to 'IND BB' from
'IND BB+ (ISSUER NOT COOPERATING)'. The Outlook is Stable.
The instrument-wise rating actions are:
-- INR180 mil. Fund-based facilities Long-term rating downgraded;
short-term rating affirmed with IND BB/Stable/IND A4+ rating;
and
-- INR2.5 mil. (reduced from INR10 mil.) Term loan due on August
2020 downgraded with IND BB/Stable rating.
KEY RATING DRIVERS
The downgrade reflects a 12.25% YoY decline in NMPL's revenue to
INR2,044.45 million in FY19 due to a fall in the sales volume. The
revenue is likely to have declined further at FYE20 as reflected by
the revenue of INR1,641.1 million booked until January 2020 due to
a further decline in the sales volumes. The revenue of 1QFY21 is
also likely to be affected by the impact of the ongoing lockdown
due to COVID-19.
The rating also factors in the company's weakened credit metrics,
with interest coverage (operating EBITDA/gross interest expense) of
2.88x in FY19 (FY18: 3.36x) and net leverage (adjusted net
debt/operating EBITDAR) of 4.93x (1.73x). The credit metrics
weakened because of an increase in the net borrowings due to
elongation in the working capital cycle to 24 days (FY18: negative
2 days).
Liquidity Indicator – Stretched: The average maximum utilization
of fund-based limits for the 12 months ended March 2020 was 77%.
NMPL's cash flow from operations turned negative to INR120.87
million in FY19 from INR23.94 million in FY18 mainly due to changes
in the working capital cycle during FY19 year-end. The cash flow
from operations is likely to have improved in FY20, driven by the
lower utilization of fund-based limits, due to the fall in sales
volumes, and an improvement in the working capital cycle, led by a
decline in inventory days.
The ratings continue to factor in the company's average operating
margin that improved to 2.1% in FY19 from 1.5% due to an increase
in the portion of the revenue generated from providing services and
the sales of spares since these businesses generate higher margins
than the sales of new cars. The return on capital employed was 13%
in FY19 (FY18:14%).
Moreover, NMPL's directors have a decade-long experience in the
automobile business and the company is an authorized dealer of
Maruti Suzuki India Limited in Uttarakhand.
RATING SENSITIVITIES
Positive: An increase in the revenue along with an improvement in
the credit metrics will be positive for the ratings.
Negative: Lower-than-expected improvement in the revenue and
deterioration in the credit metrics, with the interest coverage
ratio falling below 1.7x, will be negative for the rating.
COMPANY PROFILE
Incorporated in 2008, NMPL is an authorized dealer of Maruti Suzuki
India in Uttarakhand. In addition, it provides car repair, auto
finance, and car insurance services.
OASIS EDUCATIONAL: CARE Lowers Rating on INR5cr Loan to B+
----------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of The
Oasis Educational Society, as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 5.00 CARE B+; Stable; Issuer not
Facilities cooperating; Revised from
CARE BB-; ISSUER NOT
COOPERATING; on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated March 12, 2019, placed the
ratings of Oasis school under the 'issuer noncooperating' category
as company had failed to provide information for monitoring of the
rating. The company continues to be non-cooperative despite
repeated requests for submission of information through e-mails,
phone calls and email dated April 13, 2020 .In line with the extant
SEBI guidelines, CARE has reviewed the rating on the basis of the
best available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
At the time of last rating on March 08, 2019 the following were the
rating strengths and weaknesses:
Key Rating Weakness
* Small scale of operations with net loss incurred in FY16: The
scale of operations remained small marked by total operating income
of INR8.61 crore in FY17 and a net-worth base of INR3.21 crore as
on March 31, 2017. The society has achieved surplus margin of 2.41%
in FY15 and incurred net losses in FY16 due to adjustment of
extraordinary expenses pertaining to depreciation of previous
years. However, the same increased to 11.36% in FY17 due to
increase in SBID in absolute amount coupled with decrease in
interest cost on account of repayment of installments.
* Leveraged capital structure as on March 31, 2017: The capital
structure of the society marked by overall gearing deteriorated to
2.04x as compared to 1.08x as on March 31, 2015 due to full
utilization of working capital facilities with low networth base.
* Uneven cash-flow associated with educational Institutes: The
revenue stream of the society is skewed towards the beginning of
the academic year (normally between June-August) when the bulk of
the tuition fees and other related income is collected whereas the
society incurs regular stream of payments for meeting staff salary,
maintenance activities, interest expenses amongst others.
* Presence in a highly competitive industry: The education sector
offers immense potential as there is a growing demand for the
services offered driven by increasing propensity of the middle
class to spend on education and India's increasing population. Due
to new schools being added every year along with established
schools results in high competition level in the state and
adjoining areas of OS.
Key Rating Strengths
* Long track record of the society and experience of the trustees
for more than four decades in educational services Industry: OS
was established in 1966 by Mr. G.Pulla Reddy (Late). OS is
presently run by the trustees namely Mr. G.Raghava
Reddy(President), Mr. R.Nagaraj(Vice President), Mr. P.Subbareddy
(Executive Secretary), Mr. G. Ekamber Reddy(Treasury) and Mr. Radha
Krishna( Correspondent). All are graduates by qualification and
have more than four decades of experience in educational services
industry.
* Growth in gross receipts and satisfactory SBID margins during
review period: The gross receipt of the society is increasing y-o-y
from INR6.61 crore in FY15 to INR8.61 crore in FY17 at a CAGR of
14% due to increase in strength of students coupled with increase
in fees structure. SBID margins increasing year-on –year from
15.94% in FY15 to 26.50% in FY17 due to increase in gross receipts
resulting in absorption of financial expenses and depreciation
provisions.
* Comfortable debt coverage indicators: The society has comfortable
debt coverage indicators during review period due to increasing
SBID with low financial expenses on account of low debt levels. The
TDGCA stood comfortable at 4.17x in FY17 although deteriorated from
1.44x in FY16 due to increase in total debt at the back of
availment of working capital bank borrowings. The interest coverage
ratio has been increasing year-on-year from 16.46x in FY15 to
63.14x in FY17 due to increase in SBID in absolute amount coupled
with decrease in interest on account of repayment of vehicle loan
installments.
* Comfortable working capital cycle: The operating cycle of the
society remained comfortable during review period. The tuition fees
are collected in 3 terms during academic year. The average
creditors' period stood at 20 days in FY17 related to office
supplies and other stationary.
* Stable outlook of educational services industry: The education
sector in India is poised to witness major growth in the years to
come as India will have world's largest tertiary-age population and
second largest graduate talent pipeline globally by the end of
2020. As of now the education market is worth US$ 100 billion.
Currently, higher education contributes 59.70 per cent of the
market size, school education 38.10 per cent, pre-school segment
1.60 per cent, and technology and multi-media the remaining 0.60
per cent. Higher education system in India has undergone rapid
expansion. Currently, India's higher education system is the
largest in the world enrolling over 70 million students while in
less than two decades, India has managed to create additional
capacity for over 40 million students. At present, higher education
sector witnesses spending of over INR46,200 crore (US$6.78
billion), and it is expected to grow at an average annual rate of
over 18 per cent to reach INR232,500 crore (US$34.12 billion) in
next 10 years.
The Oasis Educational Society is registered under society's
registration act 1935. The same was popularly known as Oasis School
(OS) and was affiliated to CBSE New Delhi. OS was established in
1966 by Mr.G.Pulla Reddy (Late) at Raidurga, Hyderabad. OS is
presently run by the trustees namely Mr.G.Raghava Reddy
(President), Mr.R.Nagaraj (Vice President), Mr.P.Subbareddy
(Executive Secretary), Mr.G.Ekamber Reddy (Treasury) and Mr.Radha
Krishna ( Correspondent). OS runs two schools by the name Raidurga
School and Shamshabad School. The schools are providing education
from Nursery to X class in CBSE syllabus.
Raidurga School is situated on the main road connecting
Mehadipatnam and Gachibowli, which is a most happening place in
twin cities. The school is located in an area spread for 3 acres
and existing premises more than 50,000 sq.ft. Shamshabad School is
located in Amapalli village and well connected with necessary roads
and transportation. The area of 84 acres is belonging to the
society and 10 acres land has been marked for the school.
R. H. INTERNATIONAL: CARE Cuts Rating on INR1.0cr Loan to B-
------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of R.
H. International (RHI), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 1.00 CARE B-; Stable; Issuer not
Facilities cooperating; Revised from
CARE B; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Short-term Bank 14.00 CARE A4; Issuer not
Facilities cooperating; Based on best
available information
Long term/Short 1.65 CARE B-; Stable/CARE A4;
term Bank Issuer Not Cooperating;
Facilities Revised from CARE B;
Stable/CARE A4; Issuer Not
Cooperating on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated February 6, 2019 placed the
rating of RHI under the 'issuer non-cooperating' category as RHI
had failed to provide information for monitoring of the rating. RHI
continues to be noncooperative despite repeated requests for
submission of information through e-mails dated April 27, 2020,
April 28, 2020 and numerous phone calls. In line with the extant
SEBI guidelines, CARE has reviewed the rating on the basis of the
best available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
The ratings has been revised by taking into account
non-availability of requisite information and no due-diligence
conducted with banker due to non-cooperation by R. H. International
with CARE'S efforts to undertake a review of the rating
outstanding. CARE views information availability risk as a key
factor in its assessment of credit risk. Further, the ratings
continue to remain constrained owing small and fluctuating scale of
operations, leveraged capital structure, working capital intensive
nature of operations, foreign currency fluctuation risk, highly
competitive and fragmented industry, constitution of the entity
being a partnership firm. The ratings, however, continue to take
comfort from experienced promoters and moderate profitability
margins.
Detailed description of the key rating drivers
At the time of last rating on February 06, 2019, the following were
the rating weaknesses and strengths:
Key Rating Weaknesses
* Small and fluctuating scale of operations: The scale of
operations stood small marked by a total operating income and gross
cash accruals of INR33.64 crore and INR2.60 crore respectively for
FY17. Further, the partner's capital base was relatively modest at
INR6.28 crore as on March 31, 2017.The small scale limits the
company's financial flexibility in times of stress and deprives it
from scale benefits. Furthermore, firm's total operating income has
been fluctuating over the past three years. TOI has registered a
growth in FY16 over previous year and decline in FY17. The decline
was primarily on account of lower order received resulted into
decline in quantity sold.
* Leveraged Capital Structure: The capital structure of the
company stood leveraged for the balance sheet date of past three
financial years i.e. FY15- FY17 owing to low partner's capital and
high dependence on external borrowings to meet the working capital
requirements. Overall gearing ratio stood at 2.53x as on March 31,
2017 showing an improvement over previous balance sheet date on
account of repayment of rupee term loan coupled with higher
partner's capital base due to retention of profits. Though
improved, it continued to remain on higher side.
* Working Capital Intensive nature of operations: The operating
cycle of the company was high at 314 days in FY17 mainly on account
of high inventory period. The firm is engaged in manufacturing of
decorative handicraft items which involves extensive time consuming
processes like designing, finishing, painting etc. which resulted
in elongated inventory holding of 261 days for FY17. The company
allows a credit period of 2-3 months to its customer due to
competitive nature of industry resulting in an average collection
period of 76 in FY17. The company generally purchases its raw
material on advance and cash basis with a maximum credit period of
23 days in FY17. The average working capital borrowings of the
company remained almost fully utilized during the past 12 months
ending December 31, 2017.
* Foreign currency fluctuation risk: The firm's operations are
dependent on the export market as revenue is mainly driven by the
overseas market than the domestic market. With initial cash outlay
for procurement in domestic currency and significant chunk of sales
realization in foreign currency, the firm is exposed to the
fluctuation in exchange rates. Furthermore, in absence of any
hedging policies adopted by the firm, RHI is exposed to
fluctuations in the value of rupee against foreign currency which
may impact its cash accruals.
* Highly competitive and fragmented industry: RHI operates in
highly fragmented decorative items manufacturing industry wherein
the presence of large number of entities in the unorganized sector
limits the bargaining power with customers. Furthermore, the firm
is also exposed to competitive pressures from established players
situated in China. Constitution of the entity being a partnership
firm RHI constitution as a partnership firm has the inherent risk
of possibility of withdrawal of the partner's capital at the time
of personal contingency and firm being dissolved upon the
death/retirement/insolvency of partners. Moreover, partnership
firms have restricted access to external borrowing as credit
worthiness of partners would be the key factors affecting credit
decision for the lenders.
Key rating strengths
* Experienced promoters: The operations of the firm are currently
being managed by Mr. Tasleem Hussain and Mr. Abdullah Hussain. Mr.
Tasleem Hussain is a graduate by qualification and has an
experience of more than one and half decades in the manufacturing
of decorative items through his association with this entity. Mr.
Abdullah Hussain is a graduate by qualification and has an
experience of around two years.
* Moderate Profitability margins: Profitability margins of the
firm are directly associated with type of product manufactured
which takes into consideration of designing, shape, size etc.
Normally the products which are highly designed and complex in
nature normally fetches higher profitability margins, The
profitability margins of the firm stood moderate as marked by
PBILDT and PAT margins of 12.75% and 5.15% in FY17. Due to moderate
profitability margins, the coverage indicators also stood moderate
as marked by interest coverage ratio and total debt to GCA of 2.53x
and 6.12x respectively in FY17.
Moradabad (Uttar Pradesh) based, RHI was established as a
partnership firm in the year 2015 by Mr. Tasleem Hussain and Mr.
Abdullah Hussain sharing profit in the ratio of 7:3. RHI is a
manufacturer and primarily an exporter of decorative handicrafts
items (kitchen and household) such as table, wooden frames for
photographs and paintings, mirrors etc. made of wood, glass and
metals etc. The main raw materials required by the firm are wood,
metals, glass and electrical parts etc. which is procured
domestically and also imports the same.
SHIVANSHU SINTERED: CARE Lowers Rating on INR14cr Loan to 'B'
-------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Shivanshu Sintered Products Private Limited (SSPPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 14.00 CARE B; Issuer not cooperating;
Facilities Revised from CARE B+; ISSUER
NOT COOPERATING; on the basis
of best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated September 20, 2017, placed
the rating of SSPPL under the 'issuer non-cooperating' category as
SSPPL had failed to provide information for monitoring of the
rating. SSPPL continues to be non-cooperative despite repeated
requests for submission of information through emails, phone calls
and email dated March 20, 2020and March 23, 2020. In line with the
extant SEBI guidelines, CARE has reviewed the rating on the basis
of the best available information which however, in CARE's opinion
is not sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating(s).
The rating has been revised by taking into account non-availability
of requisite information and no due-diligence conducted due to
non-cooperation by SSPPL with CARE'S efforts to undertake a review
of the rating outstanding. CARE views information availability risk
as a key factor in its assessment of credit risk. The rating takes
into account small scale of operation and elongated inventory days.
The rating further continues to remain constrained by presence of
company in competitive industry. The rating, however, continues to
take comfort from the experience promoter and comfortable
profitability margin, capital structure and coverage indicators.
Detailed description of the key rating drivers
At the time of last rating on January 4, 2019, the following were
the rating strengths and weaknesses:
Key Rating Weaknesses
* Small scale of operations: The scale of operations of the
company stood small marked by TOI and GCA of INR26.05 crore and
INR7.08 crore, respectively, for FY19 (refers to the period
April 1 to March 31). Furthermore, the company's net worth base was
modest at INR21.66 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.
* Elongated inventory holding period: The operating cycle of the
company stood elongated at 247 days for FY19 on account of
inventory holding days though improved, however, stood high mainly
on account of inventory maintained in form of raw material and WIP.
The company makes bulk purchase of its raw material due to its
seasonal nature. Furthermore, the company extracts azadirachtin
from neem seeds and keeps stock of the inventory at semi-finished
levels. The company processes it on the basis of customers'
specification. All these resulted into an average inventory of 265
days for FY19. The company receives payment in around 15-30 days
from the customers. The company procures the key raw material,
i.e., neem seeds from local farmers on cash basis while receives
credit of around 30 days to other raw material supplier.
* Highly competitive nature of industry: The pesticides and
insecticides industry is marked by heavy competition with absence
of any player having sizeable market share in the domestic market.
However, MNCs have focused on developing patented molecule whereas
the Indian players have concentrated on marketing generic and
off-patent products with little expenditure on R&D. The intense
competition and focus on off-patent products leads to competitive
pricing in the domestic market.
Key Rating Strengths
* Experienced promoters: Mr Dhruva Kumar Gupta, Mr Venkat Gupta
and Mrs Kanta Gupta are the promoters of the company. Mr Dhruva
Kumar Gupta, has an experience of almost three decades through his
association with rice mills. Mr Venkat Gupta, post graduate by
profession has experience of around a decade in pesticide industry
through their association with SSPL.
* Comfortable profitability margins, capital structure and coverage
indicators: In the last 2 financials years (FY18 and FY19), the
profitability margins of the company stood comfortable marked by
the PBIDLT and PAT margins of 38.68% and 18.74%, respectively, for
FY19. The capital structure of the company improved marked by debt
equity and overall gearing ratio of 0.27x and 0.27x respectively as
on March 31, 2019 as against 0.58x and
0.75x respectively as on March 31, 2018 on account of additional
term loans taken for debt-funded capex. However, the same stood
comfortable. The debt service coverage indicators were comfortable
as marked by interest coverage of 11.83x and total debt/GCA of
0.84x in FY19.
Delhi-based SSPL is a private limited company incorporated in 2001.
The company is engaged in manufacturing of neembased pesticide, oil
and fertilizers. The company has its manufacturing facility located
in Faridabad, Haryana, with aggregate capacity of manufacturing
1,000 tons of organic pesticide and fertilizers as on March 31,
2016. The products are approved for use in Organic Agriculture
according to National Programme for Organic Production (NPOP) –
India, European Regulation and United States Department of
Agriculture (USDA), Institute for Marketecology (IMO), Switzerland.
The manufacturing process of the company are ISO 9001:2008
certified. The company sells its products domestically and also
exports to Europe, Kenya, Korea, China, etc. The main raw material
are neem seeds, organic solvents etc which are procured
domestically from local farmers and companies.
SINGH ENTERPRISES: Ind-Ra Moves 'BB-' LT Rating to Non-Cooperating
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Singh Enterprises
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
these ratings. The rating will now appear as 'IND BB-(ISSUER NOT
COOPERATING)' on the agency's website.
The instrument-wise rating actions are:
-- INR25 mil. Fund-based limits migrated to non-cooperating
category with IND BB- (ISSUER NOT COOPERATING) rating; and
-- INR150 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 May
13, 2019. Ind-Ra is unable to provide an update, as the agency does
not have adequate information to review the ratings.
COMPANY PROFILE
Singh Enterprises was incorporated in 1992 as a proprietorship
firm. Its registered office is in Ranchi, Jharkhand. It is managed
by Mr. Ranjan Kumar. The firm is engaged in the design, execution,
supply, installation, testing, commissioning of the interlocking
system, and maintenance of safety-related rail signaling and
control systems. It also executes projects involving the laying of
various cables, track circuiting, and other telecom works.
SONA TRADERS: CARE Lowers Rating on INR12cr LT Loan to 'B'
----------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of Shri
Sona Traders (SST), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 12.0 CARE B; Stable; Issuer not
Facilities cooperating; Revised from
CARE B+; Stable: ISSUER NOT
COOPERATING; on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from SST to monitor the rating
vide e-mail communications dated April 24, 2020, March 4, 2020,
February 10, 2020, January 14, 2020 and numerous phone calls.
However, despite repeated requests, the firm 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 best available information which however, in CARE's opinion
is not sufficient to arrive at a fair rating. The rating on SST's
bank facilities will now be denoted as CARE B; Stable; 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 ratings.
The rating is revised on account of no due-diligence conducted due
to non-cooperation by Shri Sona Traders with CARE'S efforts to
undertake a review of the rating outstanding. CARE views
information availability risk as a key factor in its assessment of
credit risk. The ratings assigned to Shri Sona Traders continue to
remain constrained by modest scale of operations, thin
profitability margins and coverage indicators , elongated operating
cycle ,exposure to price volatility of traded goods , constitution
of the entity being a proprietorship firm , highly fragmented
nature of industry characterized by intense competition. The
ratings, however, draw comfort from experienced proprietors,
comfortable capital structure, and moderate liquidity position.
Detailed description of the key rating drivers
Key Rating Weaknesses
* Modest scale of operations: The scale of operations has remained
modest marked by a total operating income (TOI) and gross cash
accruals of Rs.86.81 crore and INR0.25 crore respectively during
FY19. The firm has started its commercial operation in September
2015 and has a relatively short track record of operations as
compared with other established players. However, the experience of
the promoters in SCC Builders Private Limited (associate concern)
partially offsets this risk. However, the management is supported
by an experienced team having an experience of more than a decade
in same industry.
* Thin profitability margins and coverage indicators: The
profitability margins of the firm marked by PBILDT and PAT margins
stood thin at 2.25% and 0.28% in March 31, 2019 owing to trading
nature of business in highly competitive industry. The debt
coverage indicators stood weak due to generation of lower gross
cash accruals on account of high finance expenses incurred during
FY19. The coverage indicator stood weak with interest coverage
ratio and total debt to gross cash accruals of 1.14x and 49.10x for
FY19.
* Elongated operating cycle: The operating cycle of the firm stood
high at 99 days owing to high collection period. The collection
period remain elongated at 125 days in FY19. The firm gets a credit
period of around 30-35 days from its creditors resulting in an
average creditor period of 26 days in FY19.
* Exposure to price volatility of traded goods: The firm is
engaged in trading of building construction material primarily
steel, Soil etc. procured from the market on available prices.
Hence, the cost of the goods procured is linked to the volatility
in the prices of materials like steel, Soil etc. Further, steel is
a cyclical industry which has strong correlations with economic
cycles. This emerges from the fact that its key users like
automobiles, construction, etc are highly dependent on the health
of the economy. Thus, SST being a smaller player in the industry
gets affected during cyclical downturns of the industry.
* Constitution of the entity being a proprietorship firm: SST
constitution as a proprietorship firm has the inherent risk of
possibility of withdrawal of the proprietor's capital at the
time of personal contingency and firm being dissolved upon the
death/retirement/insolvency of partners. Moreover, proprietorship
firms have restricted access to external borrowing as credit
worthiness of partners would be the key factors affecting credit
decision for the lenders.
* Highly fragmented nature of industry characterized by intense
competition: The trading industry is a highly competitive industry
wherein there is a presence of a large number of players in the
unorganized and organized sector. There are a number of small and
regional players catering to the same market which limits the
bargaining power of the firm and exerts pressure on its margins.
Smaller companies in general are more vulnerable to intense
competition due to their limited pricing flexibility, which
constrains their profitability as compared to larger companies who
have better efficiencies and pricing power considering their scale
of operations.
Key Rating Strengths
* Experienced proprietor: Mr. Vinod Goswami looks after the overall
operations of the entity with the help of Mr. Saroj Pattnayak,
manager of the firm. Mr. Vinod Goswami has an experience of more
than 2 decades in the real estate development with his association
with SCC Builders Private Limited.
* Comfortable capital structure: The capital structure of the firm
stood comfortable marked by comfortable overall gearing ratio of
0.91 x as on March 31, 2019 as against 1.16x the previous year. The
improvement was on account of reduced reliance of external
borrowings.
* Moderate Liquidity Position: The firm has moderate liquidity
position marked by current and quick ratio of 1.78x and 1.78x as on
31 March, 2019 as against 1.53x and 1.53x in 31 March, 2018
respectively. The cash and bank balances stood INR0.03 crore as on
March 31, 2019.
Noida based M/S Shri Sona Trader (SST) is a proprietorship firm
established in September 2015 by Mr. Vinod Goswami. SST is engaged
in trading of building construction material e.g. Steel, Brick,
Soil, Autoclaved aerated concrete (AAC) Blocks, Tiles and Granite
etc. The firm procures the traded goods i.e. Brick, AAC Blocks are
from suppliers such as AGL Tiles, Bermora Granite Pvt. Ltd., Shri
Krishna Marbles and Shri Radhika Tiles & Steels. Further, SST
procures steel from Tata Steels. The major sales of the firm are
done to construction companies like Shrine Buildtech (P) Ltd, BSAG
Infra Engineering Pvt. Ltd., Lakshmi Builders, NRS Buidtech Private
Limited and its sister concern SCC Builders Private Limited. SCC
Builders Private Limited is an associate concern incorporated in
2005-06 is engaged in real estate development in the National
Capital Region, mainly Ghaziabad (Uttar Pradesh); (Rated BWR BB;
Outlook: Stable as on January 24, 2019).
SVASCA INDUSTRIES: CARE Lowers Rating on INR12cr LT Loan to B
-------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Svasca Industries (India) Limited (SIIL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 12.00 CARE B; Stable; Issuer not
Facilities cooperating; Revised from
CARE B+; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Short-term Bank 6.00 CARE A4; Issuer not
Facilities cooperating; Based on best
available information
Long-term/Short 20.00 CARE B; Stable/CARE A4;
term Bank Issuer not cooperating;
Facilities Revised from CARE B+;
Stable/CARE A4; ISSUER NOT
COOPERATING; on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated February 6, 2019, placed the
ratings of SIIL under the 'issuer non-cooperating' category as the
company had failed to provide information for monitoring of the
rating. SIIL continues to be non-cooperative despite repeated
requests for submission of information through numerous phone calls
and emails dated April 28, 2020 and April 27, 2020. In line with
the extant SEBI guidelines, CARE has reviewed the rating on the
basis of the best available information which however, in CARE's
opinion is not sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above ratings.
The rating has been revised by taking into account non-availability
of information and no due diligence conducted with banker due to
non-cooperation by Svasca Industries (India) Limited with CARE'S
efforts to undertake a review of the rating outstanding. CARE views
information non-availability risk as a key factor in its assessment
of credit risk. Further, the ratings take into account small scale
of operations, leveraged capital structure and weak coverage
indicators and elongated operating cycle. The ratings are further
constrained by its presence in highly competitive and fragmented
transformer industry and business risk associated with tender based
order. The ratings, however, draw comfort from experienced
promoters and moderate profitability margins.
Detailed description of the key rating drivers
At the time of last rating on February 6, 2019 the following were
the rating weaknesses and strengths (Updated for the information
available from the Registrar of Companies):
Key Rating Weaknesses
* Modest scale of operations: SIIL's scale of operations has
remained modest as marked by total operating income and gross cash
accruals of INR68.13 crore and INR1.41 crore respectively in
FY19(refers to the period April 1 to March 31) as against INR67.95
crore and INR1.26 crore respectively, during FY18. Further, the net
worth base was relatively small at INR12.36 crore as on March 31,
2019. The modest scale of operations and small net worth base
limits the company's financial flexibility in times of stress and
deprives it of scale benefits.
* Leveraged capital structure and weak debt coverage indicators:
The capital structure of the company stood leveraged marked by
overall gearing at 1.10x as on March 31, 2019 as against 1.06x as
on March 31, 2018 on account of relatively low net worth base
against high debt levels. Similarly, owing to high debt levels,
debt service coverage indicators as marked by interest coverage of
1.67x for FY19 as against 1.54x for FY18.
* Elongated operating cycle: The operations of the company are
working capital intensive in nature marked by high operating cycle
of 65 days in FY19 as against 72 days in FY18 owing to high
creditor period and collection period. The product manufactured by
the company is dispatched only after testing and quality checks by
various government agencies. This results into high inventory
holding in the form of finished goods. Entailing, all results into
average inventory holdings of 30 days for FY19.
* Presence in the highly competitive and fragmented transformer
industry: The transformer industry, especially the distribution
transformer segment is highly fragmented with presence of many
organized and unorganized players. The competition in the domestic
transformer industry has been increasing since the last two-three
years due to factors like import of cheaper equipment, especially
from China and large number of smaller players with limited
capacity entering the industry due to its high profitability and
easy availability of technology. Also, as most of the business is
tender-driven, the incumbent players have witnessed margin
pressures due to aggressive bidding from the players seeking an
entry in the market.
* Business risk associated with tender based orders: The company
majorly undertakes government projects, which are awarded through
the tender-based system. The company is exposed to the risk
associated with the tender-based business, which is characterized
by intense competition. The growth of the business depends on its
ability to successfully bid for the tenders and emerge as the
lowest bidder. Further, any changes in the government policy or
government spending on projects are likely to affect the revenues
of the company.
Key Rating Strengths
* Experienced promoters: The company is promoted by Mr. Siddharth
Tayal, Mrs. Tripti Tayal & Mr. Aditya Tayal. Mr. Siddharth Tayal,
is post graduate and has experience of nearly two decades in
transformer industry through his association with this entity. He
is ably supported by Mrs. Tripti Tayal & Mr. Aditya Tayal, who have
experience of nearly one decade in transformer industry through
their association with this entity. They collectively look after
the overall operations of the company. SIIL has been operating in
the manufacturing business for nearly two decades, which aid in
establishing a healthy relationship with both customers and
suppliers.
* Moderate profitability margins: The profitability margins of the
company have remained moderate during last three financial years
(FY17-FY19) as marked by PBILDT and PAT margins which stood at
7.36% and 1.58% respectively in FY19 as against 7.83% and 1.35%
respectively in FY18 due to tender driven nature of the business
wherein the margin largely depends upon the type of transformers
manufactured.
Delhi based Svasca Industries (India) Limited (SIIL) was
incorporated in May, 1997 and is currently managed by Mr. Siddharth
Tayal, Mrs. Tripti Tayal & Mr. Aditya Tayal. The company is engaged
in the manufacturing, repair & maintenance of power & distribution
transformers and servo voltage stabilizer.
TOKAI ENGINEERING: CARE Cuts Rating on INR7cr LT Loan to 'C'
------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Tokai Engineering Private Limited (TEPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 7.00 CARE C; Stable; Issuer not
Facilities cooperating; Revised from
CARE B-; Stable; ISSUER NOT
COOPERATING; on the basis of
Best available information
Short Term Bank 1.00 CARE A4; Issuer not
Facilities cooperating; Revised from
CARE A4; Issuer not
Cooperating; on the basis of
best available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated January 31,2019, placed the
ratings of TEPL under the 'issuer non-cooperating' category as
Tokai Engineering Private Limited had failed to provide information
for monitoring of the rating. Tokai Engineering Private Limited
continues to be non-cooperative despite repeated requests for
submission of information through e-mails, phone calls and a
letter/email dated March 28,2020, March 30,2020. In line with the
extant SEBI guidelines, CARE has reviewed the rating on the basis
of the best available information which however, in CARE's opinion
is not sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above ratings.
The rating has been revised by taking into account non-availability
of information and no due-diligence conducted due to
non-cooperation by Tokai Engineering Private Limited with CARE'S
efforts to undertake a review of the rating outstanding. CARE
views information availability risk as a key factor in its
assessment of credit risk. The ratings assigned to the bank
facilities of TEPL remained constrained by its small scale of
operations coupled with operational losses and leveraged capital
structure. The rating is further constrained by working capital
intensive nature of operations coupled with stretched liquidity
position and competitive nature of industry. The rating, however,
draws comfort from experienced promoters.
Detailed description of the key rating drivers
Key rating weaknesses
* Small scale of operations coupled with operational losses: The
scale of operations of TEPL stood small marked by total operating
income (TOI) of INR23.16 crore for FY18 (refers to the period from
April 1 to March 31). The small scale limits the company's
financial flexibility in times of stress and deprives it of scale
benefits. Further, the company incurred operational losses of
INR1.38 crore for FY18.
* Leveraged capital structure: The capital structure of the
company remained leveraged as on past three balance sheet date
ended March 31, 2018 owing to high reliance on external borrowings
to meet working capital requirements coupled with low net worth
base.
* Working capital intensive nature of operations coupled with
stretched liquidity position: The operations of the company stood
working capital intensive marked by high operating cycle of around
107 days for FY18 on account of prolonged inventory period in form
of raw material for smooth functioning of production process and
work in progress inventory. The products manufactured by company
are customized as per customer's specification which also requires
design approvals from the customers. Further, the company requires
clearance from its customers prior to delivery. Entailing these
resulted into average inventory of 146 days for FY18. The same
resulted into average collection period of 57 days for FY18.
Further, low quick ratio as on the last three balance sheet dates
reflects working capital intensive nature of operations
* Competitive nature of industry: TEPL faces direct competition
from various organized players in the market due to low entry
barriers and lower capital requirements. There are number of small
and regional players and catering to the same market which can
exert pressure on its margins.
Key rating strengths
* Experienced Promoters: TEPL is being managed by Mr Rajesh Khanna
and his wife Mrs. Shilu Khanna. Both the directors are post
graduates by qualification and have more than one decade of
experience in manufacturing of jigs and fixtures through their
association with TEPL. Prior to TEPL, Mr. Rajesh Khanna was
associated with manufacturing companies for 20 years
Gurgaon (Haryana) based TEPL was incorporated on July 9, 2006. The
company is currently being managed by Mr. Rajesh Khanna and Mrs.
Shilu Khanna. TEPL is engaged in manufacturing of jigs and
fixtures, testing machines, and special purpose machines. It mainly
caters to automobile companies and the tenor of the orders
undertaken by the company varies up to 4 months. The company has
combined installed capacity to manufacture 800 units per annum as
on as on March 31, 2017 from its manufacturing facility is located
in Manesar, Gurgaon (Haryana). The major raw materials of the
company are MS Steel, cylinders, pneumatic items like compressor
etc which it procures from domestic manufacturers and wholesalers.
VIRENDRA KUMAR: Ind-Ra Moves BB- Issuer Rating to Non-Cooperating
-----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Virendra Kumar
Singh's 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 these ratings. The rating will now appear as 'IND
BB-(ISSUER NOT COOPERATING)' on the agency's website.
The instrument-wise rating actions are:
-- INR40 mil. Fund-based limits migrated to non-cooperating
category with IND BB- (ISSUER NOT COOPERATING) rating;
-- INR20 mil. Non-fund-based limits migrated to non-cooperating
category IND A4+ (ISSUER NOT COOPERATING) rating; and
-- INR10 mil. Proposed fund-based limits migrated to non-
cooperating category with Provisional IND BB- (ISSUER NOT
COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
April 30, 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 August 1985, Virendra Kumar Singh constructs
bridges, roads, and flyovers.
WORLDWIDE TRADELINKS: Ind-Ra Moves B+ LT Rating to Non-Cooperating
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Worldwide
Tradelinks' 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 these ratings. The rating will now
appear as 'IND B+ (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating action is:
-- INR300 mil. Fund-based limits migrated to non-cooperating
category with IND B+ (ISSUER NOT COOPERATING) / IND A4
(ISSUER NOT COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
June 6, 2019. Ind-Ra is unable to provide an update, as the agency
does not have adequate information to review the ratings.
COMPANY PROFILE
Worldwide Tradelinks manufactures knitted readymade garments. It
has a daily installed capacity of 15,000 pieces.
=================
I N D O N E S I A
=================
ABM INVESTAMA: Fitch Affirms B+ Issuer Default Rating, Outlook Neg.
-------------------------------------------------------------------
Fitch Ratings has affirmed PT ABM Investama Tbk's Long-Term
Foreign-Currency Issuer Default Rating at 'B+'. The Outlook is
Negative. The agency has also affirmed the rating on ABM's
US-dollar senior notes at 'B+' with a Recovery Rating of 'RR4'.
The affirmation reflects a better improvement than Fitch expected
in ABM's contracting business, which will somewhat counteract its
anticipated deterioration in the group's mining business. ABM
signed new coal mining contracts over the previous year that will
make up for loss in volume due to the cancelation of agreements
with its key customer - PT Toba Bara Sejahtra Tbk - in 1Q19.
The Negative Outlook reflects its expectations that the company's
credit metrics will weaken because of its coal mining business, in
line with its downward revision of the coal price and volume
assumptions. Fitch lowered the selling price of ABM's thermal coal
for 2020 following the revision of its commodity-price assumptions.
Fitch expects the company's coal sales volume to decline by 16% yoy
in 2020 due to weaker demand amid the coronavirus pandemic, before
picking up to 2019 levels in 2021. There is also a degree of
operational risk associated with PT Cipta Kridatama, ABM's mining
services subsidiary, maintaining profitability at its newly
contracted sites.
ABM continues to struggle to find a suitable acquisition target to
replenish its falling reserves at its key mine, PT Tunas Indi
Abadi. Fitch does not expect an acquisition to be likely within the
next two to three years, adding to ABM's weakening business
profile. This has led Fitch to tighten its financial triggers for
negative rating action to FFO adjusted net leverage of above 3.0x
for a sustained period, from more than 4.0x.
KEY RATING DRIVERS
Recovering Mining Contracting Business: CK has signed new contracts
over last year, making up for most of the volume lost after the
cancellation of ABM's three key contracts by its top customer, Toba
Bara, in 1Q19. CK's quick turnaround was supported by its spare
capacity, which includes its young fleet and quality Caterpillar
equipment sourced through an affiliated company. Fitch expects
volume to increase to 118 million billion cubic metres in 2020,
against management's estimates of about 150 million bcm, as Fitch
has factored in its assessment of the pandemic's impact on CK's
mining plans. Toba Bara accounted for 60 million bcm of ABM's
overhead removal volume in 2018.
Reduced Strategy, Execution Risk: Fitch has revised ABM's ESG
relevance score of 4 for management strategy back to 3. The
revision follows CK demonstrating its ability to recoup the volume
it lost due to Toba Bara. ABM used external consulting services
over last few years to improve its operational efficiency across
its mining contracting and coal-mining businesses. There is a
degree of operational risk associated with CK maintaining
profitability at its newly contracted sites, but not significant
enough to directly damage its credit profile, in its view.
Coal Mining Operation to Deteriorate: Fitch lowered selling price
assumption for ABM's thermal coal in line with the agency's
revision of its commodity-price assumptions. It also expects ABM's
coal sales volume to contract by 16% due to weaker demand and the
possibility of lower production quotas in 2020. Fitch no longer
expects ABM to acquire a mid-range calorific value mine to
replenish its depleting coal reserves at its key TIA mine in the
medium term; TIA produces coal with a CV of 4,200kcal/kg and has
only three years of reserve life left. ABM's second mine, PT MIFA
Bersaudara, has higher reserves, at about 220 million tonnes,
although the mine produces lower CV coal of 3,100-3,400kcal/kg,
resulting in lower profit.
Integrated Business Model: ABM benefits from its integrated
operation, with a presence across the energy value chain. A
presence across mining contracting, low-cost coal mining,
logistics, engineering services and fuel services enables ABM to
drive synergies and offer services across the value chain to
customers. The company also benefits from its relationships with
affiliated companies, including PT Trakindo Utama, a long-term
distributor of Caterpillar, which provides most of the equipment
and spare parts for ABM's mining contracting business. Trakindo is
also an important customer for ABM's logistics and engineering
services.
Financial Profile to Weaken: Fitch expects ABM's financial profile
to weaken due to a deterioration in its mining operation. Fitch
expects ABM's FFO adjusted net leverage to remain at around 4.3x in
2020, before improving to less than 3.0x from 2021. ABM acquired a
minority stake in another coal mining company in 2019 for USD60
million. The acquisition supported the company's contracting
business volume, but reduced its cash balance. Nevertheless, Fitch
expects ABM's free cash flow before acquisitions to remain positive
from 2021 in light of its moderate capex expectations.
Exposure to Cyclical Coal Industry: ABM is vulnerable to the
commodity cycle, as around 80% of its EBITDA and cash flow is
derived from the coal industry. This risk is mitigated by its
low-cost position as a coal producer and its integrated business
model.
DERIVATION SUMMARY
ABM's closest peer is PT Bukit Makmur Mandiri Utama (BUMA,
BB-/Negative). ABM benefits from diversification across various
business segments and its stronger financial profile; however, its
core contracting business is weaker than BUMA's, justifying a notch
of difference in its credit assessment, in its view. BUMA enjoys a
stronger market share, with better efficiency and hence operating
margins. BUMA ranks as Indonesia's second-largest mining
contractor, while Fitch expects ABM's position to drop from being
the fourth-largest mining contract after losing its key customer.
Within coal mining peers, ABM can be compared with PT Golden Energy
Mines Tbk (B+/Stable), which is assessed based on the consolidated
credit profile of Golden Energy and Resources Limited (GEAR,
B+/Stable). Compared with ABM, GEAR has a longer reserve life and
lower cost position. On the other hand, ABM benefits from its
portfolio of diversified businesses. However, ABM's further
weakening financial profile justifies the Negative Outlook at the
same rating level.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Newcastle coal prices in line with the Fitch price deck; 2020:
USD65/tonne, 2021: USD72/tonne; 2022: USD72/tonne and 2023:
USD75/tonne. ABM's coal prices are adjusted for CV
- Overburden volume to increase by 23% to 118 million bcm in 2020
on new contracts. Thereafter Fitch assumes an increase of 18% in
2021 and 6% in 2022
- Coal mining sales volume to decline by 16% in 2020, then pick
up by 2 million tonnes in 2021 and another 1 million tonnes in
2022
- Deterioration in the EBITDA margin to 16% (2018: 24%)
- Capex of USD30 million-40 million in 2020-2023
- No dividend pay-outs
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
The Outlook is Negative and Fitch therefore does not expect
positive rating action. However, developments that may lead to a
revision in the Outlook to Stable include:
- Sustained recovery in ABM's coal contracting and mining
businesses, including volume growth and profitability
- FFO net leverage below 2.0x for a sustained period
- FFO adjusted net leverage below 3.0x for a sustained period
- FFO fixed-charge cover above 2.0x for a sustained period
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Further deterioration in the company's core operating segment,
including an inability to execute its new overburden removal
contracts
- Cash flow generation below Fitch's expectation, leading to a
prolonged deterioration in credit ratios as follows; FFO net
leverage above 2.0x, FFO adjusted net leverage above 3.0x and FFO
fixed-charge cover below 2.0x
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: ABM ended 2019 with readily available cash
of about USD100 million, according to management. Fitch expects
ABM's cash flow from operations to dip to less than USD30 million
in 2020, but to recover to an average of USD110 million a year
thereafter, which should be sufficient for its capex requirements.
The company cleared its outstanding restructured trade payables of
USD34 million by mid-2019. Aside from financial leases of USD13
million, the company's debt structure includes USD35 million in
working capital facilities and a USD350 million bond that is due in
August 2022. Fitch expects the company to refinance about USD200
million of its bond. ABM has a longstanding relationship with
banks. According to management, the company has a committed working
capital facility of USD90 million, of which USD35 million was drawn
at end-2019.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
=========
J A P A N
=========
MAZDA MOTOR: Seeks JPY300 Billion in Financing From Banks
---------------------------------------------------------
Asian Nikkei Review reports that Mazda Motor has requested JPY300
billion (US$2.8 billion) in financing from Japan's three megabanks
and other institutions as it braces for further fallout from the
coronavirus pandemic, and part of the loan has already been
provided.
The Nikkei says the outbreak has caused demand to plunge,
triggering shutdowns of the carmaker's plants in Japan and North
America.
According to the report, the carmaker was already struggling with
weak sales before the pandemic, and its cash flow has turned
negative. It plans to use the financing to build up its cash
reserves,
It has requested loans from the megabanks -- MUFG Bank, Sumitomo
Mitsui Banking and Mizuho Bank -- as well as from the
government-owned Development Bank of Japan and Sumitomo Mitsui
Trust Bank.
The Nikkei relates that the banks are expected to provide the
financing.
As of December, Mazda had nearly JPY500 billion in cash and around
JPY63 billion in securities, the Nikkei discloses. The automaker
has also secured a credit line of around JPY200 billion from
Sumitomo Mitsui Banking and other financial institutions.
However, its free cash flow for the April to December 2019 period
was a negative JPY130 billion, the Nikkei notes. The new financing
would help the automaker prepare for a drawn-out pandemic.
The Nikkei notes that the pandemic has greatly impacted Mazda. Its
unit sales in February dropped 14% from the same month last year,
then March followed with a 33% tumble. Most of the automaker's main
plants in Japan and abroad have been suspended since the end of
that month.
According to the Nikkei, the company's sales outlook for Japan and
North America had been dire before the pandemic. Mazda in February
downgraded expected sales for the fiscal year ended in March to 1.5
million vehicles, a 60,000-unit plunge from the previous fiscal
year. It had initially expected to sell 1.55 million vehicles.
In November, Mazda revised its operating profit outlook to JPY60
billion, down 27% from the previous year; it had previously planned
to post a JPY110 billion operating profit.
Last year, the automaker stumbled when it tried to implement a new
pricing strategy. It launched two new models in 2019 but attached
high sticker prices that alienated customers. This resulted in
decreased sales in North America, which accounts for nearly 30% of
Mazda's unit sales.
The Nikkei adds that the carmaker also tried to limit dealer
incentives, which are often used to offer showroom discounts, as a
means to build its brand value. But this tactic also backfired,
leading to lackluster sales around the globe.
Mazda has been in and out of financial difficulty for decades now,
the report states. In the late 1990s, after recording net losses
for five consecutive years, it was brought under the wing of U.S.
automaker Ford Motor. The arrangement helped the Japanese company
get back on its feet as it launched a series of successful models,
including the CX-5 SUV.
But Mazda never made it big, and in 2017, Toyota Motor took a 5.1%
stake.
Mazda Motor Corporation manufactures and sells automobiles, trucks,
auto parts, and its accessories. The Company operates its business
worldwide.
UNIVERSAL ENTERTAINMENT: Fitch Lowers LT IDR to B, Outlook Negative
-------------------------------------------------------------------
Fitch Ratings has downgraded Japan-based Universal Entertainment
Corporation's Long-Term Issuer Default Rating to 'B' from 'B+' and
the senior secured rating to 'B' from 'B+' with a Recovery Rating
of 'RR4'. The rating Outlook is Negative. The ratings have been
removed from Rating Watch Negative.
The downgrade is driven by increasing risks to UE's earnings and
cash flows as a result of the coronavirus pandemic. The gaming
sector is highly exposed to the outbreak and UE's vulnerability is
exacerbated by its single location focus and its lack of a track
record in casino operations as its integrated resort in the
Philippines, the Okada Manila, is still in the ramp-up phase.
Fitch expects the extended closure of the IR due to the pandemic to
compound earnings volatility in the domestic amusement-equipment
business, which had only begun to recover from a prolonged slump
prior to the outbreak, and result in a credit profile that is no
longer commensurate with a 'B+' rating. The Negative Outlook
reflects the lack of visibility over the timing and extent of a
potential recovery.
KEY RATING DRIVERS
Uncertainty over Casino Expansion: The downgrade reflects increased
uncertainty over the completion of the ramp-up and further
expansion of the Okada Manila, which is in the capital's
Entertainment City, where casinos will remain closed until May 15
after President Rodrigo Duterte extended the lockdown on
metropolitan Manila. The IR business had expanded dynamically prior
to the closure and contributed more than half of consolidated
revenue and EBITDA in 2019. Fitch therefore expects the closure to
weaken UE's cash flow materially at least through 2020. It
considers the risk of an extended suspension high in light of the
severity of the outbreak. Economic uncertainty and lack of consumer
confidence could lead to prolonged earnings decline even if
operations were to resume in late May.
Updated IR Assumptions: Fitch believes the IR is likely to remain
closed through May and only resume operations in mid-June. Under
this scenario, Fitch assumes a 70% yoy drop in revenue in 2Q20,
followed by a 25% decline in 3Q20 and a 15% decline in 4Q20, in
line with its assumptions for comparable global casino markets.
Fitch expects the EBITDA margin in 2020 to contract to a
mid-single-digit level and free cash flow at the casino operations
to become materially negative in 2H20.
Delay Risk in Domestic Recovery: UE's other main segment, the
amusement-entertainment business, which focusses on production and
sales of pachinko and pachislot machines for Japanese pachinko
parlours, has been in a structural decline with volatile earnings.
UE said strong performance in the segment largely offset the
negative effects of the IR closure in 1Q20. However, major pachinko
chains have suspended operations following the Japanese
government's emergency declaration, which was expanded on April 17
to cover the whole of Japan and recently extended until May 31,
2020. This could lead to a delay in the recovery in machine sales,
which Fitch had previously anticipated in 2H20, and further weaken
UE's credit profile.
Improved Capital Structure, Sufficient Liquidity: UE has improved
its capital structure from previous years by cutting
interest-bearing debt from JPY252 billion at end-2017 to JPY84
billion by end-2019 and reducing its reliance on short-term
financing. UE's short-term debt of JPY8 billion at end-2019 was
comfortably covered by a cash balance of JPY38 billion. The IR
closure will likely result in significant cash burn in 2Q20, but
Fitch believes the company has flexibility to preserve cash through
measures such as furloughs and capex cuts.
Refinancing risk is manageable as its USD600 million notes only
mature in December 2021. However, Fitch believes a prolonged IR
closure and weaker-than expected recovery could lead to declining
liquidity as well as negatively affect UE's access to funding.
Fitch will therefore continue to evaluate the impact of the
pandemic on UE's liquidity, cash flow generation and refinancing
options closely.
DERIVATION SUMMARY
UE operates the largest casino in Manila's Entertainment City, but
on a standalone basis, the scale of the IR is modest compared with
that of most peers such as Crown Resorts Limited (BBB/Stable) and
Las Vegas Sands Corp (BBB-/Stable). UE's profitability is roughly
in line with that of the two peers but Fitch thinks its casino
business is more vulnerable because it is dependent on a single
location while Crown's resorts are spread across Australia and
Sands has multiple attractive locations. Crown and Sands also
operate in more stable regulatory regimes than UE.
The Japanese company's execution and operational risks are also
notably higher than that of Crown and other peers as UE has not yet
established a track record in the junket and high-roller segments.
Heightened volatility in the previously stable domestic
amusement-equipment segment in 2018 and early 2019 in the wake of
regulatory changes adds to the uncertainty amid the lack of
visibility over the timing and extent of a recovery. This offsets
UE's moderate leverage and robust coverage metrics to a large
extent.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer
- Revenue to drop by around 17% in 2020 on IR closure and weaker
amusement-equipment sales, but increase by about 5% in 2021 as IR
expansion and recovery in domestic business resume
- Mid-single-digit EBITDA margin in 2020 (2019: 14.6%) and
11%-12% in 2021
- Annual capex of JPY6 billion in 2020 and 2021
- No dividends in 2020-2021
Recovery Rating Assumptions:
Its distressed scenario is based on going-concern value as Fitch
believes it would maximise recovery for creditors. Fitch has
assumed a 16% discount to a projected EBITDA of JPY20 billion,
broadly in line with its base-case projection for group EBITDA
after the completion of the casino expansion, a distressed
enterprise value/EBITDA multiple of 4.5x and 10% administrative
claims.
A country cap applies under Fitch's criteria, despite the notes
being secured obligations of subsidiary guarantors, because of the
lack of a track record of enforceability in the Philippines, the
location of the IR and the source of much of the group's earnings
and cash flows in Fitch's projections. This limits the instrument
rating to 'B'/'RR4'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Stabilisation of revenue and earnings upon the re-opening of
the IR and/or Japanese pachinko parlours
- Sustainably positive FCF
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Prolonged closure of the IR and/or Japanese pachinko parlours
leading to further revenue and earnings deterioration
- Sustained cash burn beyond 2Q20
- Deteriorating liquidity
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity, Manageable Maturities: UE's 2019 readily
available cash of JPY38 billion comfortably covered short-term debt
of JPY8 billion. The company projected a similar amount of
short-term debt and a cash balance of about JPY30 billion by
end-1Q20, which Fitch regards as sufficient for the time being. It
also believes refinancing risk is manageable at this stage,
considering UE's USD600 million notes mature in December 2021.
However, Fitch notes that liquidity could decline and refinancing
risk may rise in the event of an extended closure of the IR and
heightened market volatility, depending on the length and evolution
of the coronavirus outbreak.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Universal Entertainment Corporation: Governance Structure: 4
===============
M O N G O L I A
===============
MONGOLIA: Moody's Alters Outlook on B3 Issuer Rating to Negative
----------------------------------------------------------------
Moody's Investors Service has changed the outlook on the Government
of Mongolia's issuer ratings to negative from stable and affirmed
the long-term B3 issuer and foreign currency senior unsecured bond
ratings and the (P)B3 senior unsecured MTN program rating. The
short-term issuer ratings are affirmed at Not Prime.
The decision to change the rating outlook to negative reflects
rising external vulnerability risks related to a sharp fall in
export revenue at a time when access to external financing is
highly uncertain, threatening already weak foreign exchange
reserves adequacy. Moreover, the government's borrowing
requirements will increase markedly, in part to fund a large
stimulus package, which raises liquidity risks.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, and falling asset prices are
creating a severe and extensive credit shock across many sectors,
regions and markets. The combined credit effects of these
developments are unprecedented. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety. For
Mongolia, pressures on the sovereign's external position
exacerbates external vulnerability risks, particularly ahead of
large repayment obligations on external debt that will start to
come due in 2021.
The affirmation of the B3 rating reflects Mongolia's existing
credit challenges, including long-standing external and liquidity
risks. A broadly balanced government budget coupled with high
nominal GDP growth in recent years has reduced the debt burden from
high levels. However, a slowdown in growth this year due to the
impact of the coronavirus on global and Chinese demand for coal and
the government's announced fiscal stimulus measures will increase
borrowing requirements and prevent a further decline in the debt
burden, delaying potential improvements in weak fiscal strength.
Moreover, weak governance and policy effectiveness continue to
impede the government's capacity to shelter the economy and public
finances from commodity price cycles.
Mongolia's country ceilings remain unchanged: the local-currency
bond and deposit ceilings remain at Ba2, the long-term foreign
currency deposit ceiling at Caa1, and the long-term foreign
currency bond ceiling at B1; all short-term foreign currency
ceilings also remain unchanged at Not Prime.
RATINGS RATIONALE
RATIONALE FOR THE NEGATIVE OUTLOOK
FALL IN EXPORT REVENUE PUTS PRESSURE ON RESERVES AND EXACERBATES
EXTERNAL VULNERABILITY
The negative outlook is underpinned by a rise in external
vulnerability. Moody's expects a material widening in Mongolia's
already large current account deficit, raising the country's
reliance on external debt funding, the availability and cost of
which is particularly uncertain at the moment. Intensifying strains
on Mongolia's capacity to secure financing for its imports and/or
external debt commitments would threaten macroeconomic stability.
The price of Mongolia's main commodities, coal and copper, has
fallen sharply and is unlikely to recover rapidly. Combined with
exports restrictions and lower demand from China and globally,
Moody's expects a sharp drop in commodity export proceeds this
year, leading to a widening in the current account deficit to
15-20% of GDP.
From a build-up in reserves over the past three years, to $4.4
billion as of February 2020, Moody's now estimates foreign reserves
will end the year at $3.0 billion, assuming the government secures
financing for its fiscal stimulus from official lenders.
In the current environment of heightened uncertainty about
Mongolia's capacity to generate export revenue and obtain external
financing at moderate costs and in a timely fashion, there is a
risk that funding pressures, not yet acute, will increase. In
mid-May, an upcoming $500 million maturity for a
government-guaranteed bond may be partly met by the central bank,
which will have a manageable impact on foreign reserves. But beyond
this year, funding stress may come from maturing external bonds,
which the government intends to refinance. Moody's estimates total
maturing external sovereign bonds will amount to 18% of reserves in
2021, increasing further in 2022. Moody's projects its External
Vulnerability Indicator, the ratio of maturing external debt to
reserves, to rise above 200% in 2021 from around 140% in 2020.
Reserve coverage will drop to around 7 months of imports in 2020 by
Moody's calculations, from 8.6 months at the end of 2019.
While not Moody's current expectation, indications that the
government was likely to participate in debt relief initiatives
which the rating agency concluded were likely to entail losses for
private sector creditors would be negative for the rating.
HIGHER BORROWING REQUIREMENTS, INCLUDING THE FINANCING OF A LARGE
STIMULUS PACKAGE, RAISE LIQUIDITY RISKS
Mongolia's immediate financing needs are higher than Moody's
anticipated at the start of this year, primarily driven by a
significantly wider fiscal deficit.
In response to the coronavirus outbreak, the government has
announced a large fiscal stimulus plan of about MNT 5.0 trillion
[1] ($1.8 bn, or 12.5% of Moody's estimated 2020 GDP). Factoring in
a contraction in revenues, and some capital spending reallocation,
higher spending will result in the fiscal deficit widening to 8.5%
of GDP this year compared to Moody's expectation of a 4.8% of GDP
deficit at the start of the year.
Wider deficits will add to the government's gross borrowing
requirements, which Moody's estimates at 12.5% of GDP this year,
and which will continue to climb to peak at 18.5% of GDP in 2022 as
external bond repayments come due. Moody's expects that these
financing needs will be sourced from a mix of external financing,
in particular from multilateral and bilateral lenders and domestic
sources. If concessional sources do not fully materialize and
authorities maintain their planned stimulus measures, liquidity
strains will increase.
Meanwhile, tapping into the domestic market will weigh on debt
affordability metrics. This will be reflected in the ratio of
interest payments to revenues, which Moody's estimates will rise
close to 10% in 2020, and continue to increase over the next few
years.
RATIONALE FOR AFFIRMING THE B3 RATING
The B3 rating balances emerging external and liquidity pressures
against recent improvements in debt levels and affordability, which
provide some degree of fiscal flexibility.
Broadly balanced government budgets and high nominal GDP growth in
recent years have reduced the debt burden from high levels, to
around 60% of GDP in 2019 [2]. In the current shock, weaker growth
due to the impact of the coronavirus epidemic on global and Chinese
demand for coal and the government's announced fiscal stimulus
measures will increase borrowing requirements and prevent a further
decline in the debt burden. Moody's expects government debt to rise
to around - or slightly above - 70% of GDP, and debt affordability
to weaken somewhat, which will at the very least delaying potential
improvements in weak fiscal strength.
A more pronounced increase in the debt burden will be prevented by
a resumption in strong nominal GDP growth, at double digit rates
from 2021. In particular, after GDP growth slows to close to 1%
this year, Moody's expects growth to return towards Mongolia's high
potential rates, which continue to represent an underlying credit
strength, although dependent on large projects proceeding as
planned beyond 2020. Moody's assumes that no major change to the
mining agreement for Oyu Tolgoi -- the country's largest copper
mine - will take place after the forthcoming parliamentary
elections.
The affirmation of the B3 rating also assumes that external
financing will be available from multilateral and bilateral
lenders, preventing a further escalation of external risks. In
addition, it is based on the expectation that Mongolia will meet
all its direct and indirect debt obligations in the foreseeable
future.
The B3 rating incorporates a weak institutional framework, that has
historically amplified susceptibility to boom-bust cycles. The
coronavirus outbreak has triggered such a cycle with a large drop
in commodity prices, at a time when government spending is being
ramped up ahead of parliamentary elections scheduled for June.
ENVIRONMENTAL SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental considerations are material for Mongolia. A global
shift towards renewable energy and electric vehicles will likely
drive strong demand for some of its mineral products, particularly
copper, significantly lifting its growth potential. However,
Mongolia is also exposed to environmental risk. Agriculture, also
an important sector for the Mongolian economy, is negatively
affected by land degradation, which hurts the livestock industry
and increases its vulnerability to extreme weather conditions and
climate change.
Social considerations are not material for Mongolia. While income
levels are low on average and the distribution of proceeds from the
mining sector is uneven, macroeconomic measures of income
inequality such as the Gini coefficient do not signal significant
exposure. Moody's views the coronavirus outbreak as a social risk
under its ESG framework, given the substantial implications for
public health and safety. For Mongolia, the shock mainly
materializes mainly through a fall in commodity prices and
tightening in financing conditions.
Governance considerations are material to Mongolia's credit profile
and primarily relate to low credibility of fiscal targets, the
absence of a track record of adherence of major reforms, and past
experience of pro-cyclical policies linked to electoral and
commodity price cycles. High levels of corruption and factious
politics also present broad governance
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Increasing confidence that Mongolia will be able to refinance
upcoming external debt maturities at moderate costs while
preserving macroeconomic stability would likely lead to a return to
a stable rating outlook. Such a view might be driven by
improvements in the management of domestic public finances,
containing the government's funding requirements and the overall
economy's external financing needs.
Downward rating pressures would likely transpire from persistent
external financing gaps that threaten macroeconomic stability. A
more severe deterioration in fiscal and debt metrics than Moody's
currently expects would add to such pressures. While not Moody's
current expectation, indications that the government was likely to
participate in debt service relief initiatives which Moody's
concluded were likely to entail losses for private sector creditors
would be negative for the rating.
GDP per capita (PPP basis, US$): 13,451 (2018 Actual) (also known
as Per Capita Income)
Real GDP growth (% change): 6.9% (2018 Actual) (also known as GDP
Growth)
Inflation Rate (CPI, % change Dec/Dec): 8.1% (2018 Actual)
Gen. Gov. Financial Balance/GDP: 0.8% (2018 Actual) (also known as
Fiscal Balance)
Current Account Balance/GDP: -16.8% (2018 Actual) (also known as
External Balance)
External debt/GDP: 219.3% (2018 Actual)
Economic resiliency: b1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On May 4, 2020, a rating committee was called to discuss the rating
of the Mongolia, Government of. The main points raised during the
discussion were: The issuer's economic fundamentals, including its
economic strength, have not materially changed. The issuer's
institutions and governance strength, have not materially changed.
The issuer's governance and/or management, have not materially
changed. The issuer's fiscal or financial strength, including its
debt profile, has not materially changed. The issuer has become
increasingly susceptible to event risks.
The principal methodology used in these ratings was Sovereign
Ratings Methodology published in November 2019.
MONGOLIAN MORTGAGE: Moody's Alters Outlook on B3 Ratings to Neg.
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Moody's Investors Service has affirmed the B3 long-term foreign
currency issuer rating, foreign currency backed senior unsecured
rating and long-term corporate family rating of Mongolian Mortgage
Corporation HFC LLC.
At the same time, Moody's has changed the outlook on Mongolian
Mortgage Corporation to negative from stable.
The rating action follows Moody's decision to change the outlook to
negative from stable on the Mongolian government's B3 issuer rating
on May 8, 2020.
RATINGS RATIONALE
The change in outlook to negative from stable reflects Moody's view
of the high correlation between the creditworthiness of Mongolian
Mortgage Corporation and that of the sovereign and the Mongolian
banking system, given (1) the concentration of their operations in
Mongolia; and (2) their significant direct and indirect
counterparty risk exposures to domestic banks and the central
bank.
The negative outlook also reflects the rising challenges for the
company to refinance its external foreign currency debt, given
Moody's expectations of rising vulnerability on the sovereign's
external position and weaker financial markets environment.
Mongolian Mortgage Corporation has a $300 million bond maturing in
January 2022.
That said, Moody's decision to affirm the B3 ratings of Mongolian
Mortgage Corporation reflects its view that the current ratings
continue to reflect the resilience of the company's financial
strength underpinned by strong asset quality, moderate
capitalization, and stable profitability as the sole mortgage
servicer for the government's affordable housing finance program.
The company's key credit weaknesses are its elevated counterparty
risks due to its exposure to commercial banks in Mongolia and the
Bank of Mongolia, its credit concentration within the Mongolian
residential property sector, and its weak liquidity.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, volatile oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The Mongolian
banking system and therefore MIK have been affected by the shock,
particularly given the role that commodity exports play in
Mongolia's economy. Moody's regards the coronavirus outbreak as a
social risk under its ESG framework, given the substantial
implications for public health and safety.
Mongolian Mortgage Corporation's B3 rating does not incorporate any
uplift for government support because the company's standalone
assessment of b3 is at the same level as the Mongolian government's
B3 issuer rating. Nevertheless, Moody's expects a high level of
support from the Government of Mongolia in times of stress. Moody's
assumption of support is based on Mongolian Mortgage Corporation's
(1) unique policy role in Mongolia; (2) close linkages with the
central bank and the government; (3) 19.3% direct and indirect
government ownership as of the end of 2019; and (4) high systemic
importance to Mongolia's financial sector, given its prominent role
in the domestic residential mortgage backed securities market.
Mongolian Mortgage Corporation's long-term issuer rating and backed
senior unsecured ratings are at the same level as its CFR. While
Mongolian Mortgage Corporation's senior unsecured debt is
structurally subordinated to the company's special purpose
companies, Moody's has also considered the fact that the holders of
these SPCs do not have claims against the operating entity's
assets, as well as the availability of assets to the senior
unsecured debt holders at the operating entity's level. SPCs are
established to securitize mortgages purchased without recourse
under Mongolia's affordable housing program. Holders of RMBS issued
by the individual SPCs are the Bank of Mongolia and the originating
banks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING UP
Given that the B3 ratings assigned to Mongolian Mortgage
Corporation are the same as the sovereign issuer rating, an upgrade
of the ratings is unlikely. The outlook on Mongolian Mortgage
Corporation could be changed to stable from negative if (1) the
outlook on the sovereign rating is changed to stable from negative,
(2) the banking system's operating environment remains broadly
stable, and (3) the company maintains sound financial metrics.
WHAT COULD CHANGE THE RATING DOWN
Moody's could downgrade the ratings of Mongolian Mortgage
Corporation if its standalone assessment is lowered, Mongolia's
banking system risks rise materially, and/or the sovereign rating
is downgraded. The standalone assessment could be lowered if the
company's liquidity profile weakens substantially in regards to its
foreign currency debt servicing and/or if Mongolia's asset quality
of mortgage deteriorates materially.
The principal methodology used in these ratings was Finance
Companies Methodology published in November 2019.
Mongolian Mortgage Corporation HFC LLC is a wholly-owned subsidiary
of MIK Holding JSC which is headquartered in Ulaanbaatar. MIK
Holding JSC's consolidated assets totaled MNT4.18 trillion ($1.5
billion) as of December 31, 2019.
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N E W Z E A L A N D
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VBASE: Plan to Shed 60% of Staff Amid Covid-19 Downturn
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Dominic Harris at Stuff.co.nz reports that Vbase, the company which
runs some of Christchurch's biggest events venues, is set to lay
off 60 per cent of permanent staff due to the coronavirus
lockdown.
The company has had no income since the Government halted public
events from March 17 as part of the pandemic response, the report
says.
According to Stuff, Vbase said in a statement on May 13 it expected
to be able to hold "few if any" events until later this year, with
recovery to pre-Covid-19 levels expected to take at least 12 to 18
months.
"While the outlook remains uncertain, we anticipate border
restrictions, and public assembly and social distancing
requirements to have a prolonged impact on the events market.
"When venues can reopen for business, the longer term recessionary
economic outlook is also expected to affect event attendance and
therefore event viability.
"Pent up public demand for events is not expected to be sufficient
to offset these negative forces."
While staff have been retained in the short term through support
from the Government's employer wage subsidy and an agreement to cut
pay by 20 per cent, the company said the end of the subsidy next
month was forcing it to reduce in size, given the long-term outlook
and expected slow recovery, Stuff relates.
"This means Vbase is proposing to disestablish 45 full and
part-time positions, representing a reduction in permanent staffing
of 60 per cent," the company, as cited by Stuff, said. "It is
proposed to retain all casual positions, however people in these
positions are unlikely to be allocated work until October 2020 at
the earliest."
A statement from the company's board of directors added: "This is a
distressing time for all, particularly for those people who are
faced with leaving our company.
"Many of these people have highly valued specialist skills and will
be a loss to Vbase."
Stuff adds that Vbase hosted 374 events at its venues in the 12
months to June last year, earning it NZD18.2 million in revenue.
But it still posted a NZD15.2 million loss, predominantly due to a
blow-out in the cost of repairs to the Town Hall.
As of December the company was on track to record a NZD3.1 million
loss in the current year - a significant improvement on the NZD39.2
million lost in 2013-14, Stuff discloses.
About Vbase
Owned by Christchurch City Council, Vbase employs more than 65 full
and part-time staff and hundreds of casual workers. As well as
owning and running the Christchurch Town Hall and Horncastle Arena,
it also manages Orangetheory Stadium in Addington, Hagley Oval, and
the Wigram Air Force Museum on behalf of other owners.
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P H I L I P P I N E S
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CEBU AIR: Egan-Jones Lowers Senior Unsecured Ratings to B
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Egan-Jones Ratings Company, on April 30, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Cebu Air Incorporated to B from B+. EJR also
downgraded the rating on commercial paper issued by the Company to
B from A3.
Cebu Air, Incorporated, operating as Cebu Pacific and informally
and colloquially known as Cebu Pac, is a Philippine low-cost
airline based on the grounds of Mactan-Cebu International Airport,
Lapu-Lapu City, Metro Cebu, in the Philippines.
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S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Asia Pacific is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
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Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez,
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Editors.
Copyright 2020. All rights reserved. ISSN: 1520-9482.
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