CARE downgrades Prakash Industries' issuer rating

The company had raised $77.1 mn through FCCBs in two tranches - $17.1 mn in FY10 and $60 mn in FY11

CARE Ratings has downgraded the issuer rating for Prakash Industries Ltd (PIL) from 'BBB+' to 'BB+', on the weakness in its credit profile due to uncertainty over raising resources to redeem foreign currency convertible bonds worth $77.1 million.

This has been accentuated by the Central Bureau of Investigation (CBI) action against its promoters on account of allegations of graft and bribery. The issuer rating has also been placed under ‘credit watch', CARE stated.

The PIL stock was up 3.25 per cent on Monday to Rs 84.15 on the BSE exchange.

PIL had raised $77.1 mn through FCCBs in two tranches — $17.1 mn in FY10 and $60 mn in FY11. These are due for redemption in October 2014 and April 2015, respectively.

The company planned to refinance tranche-I of the FCCB via external commercial borrowing from Syndicate Bank and expects conversion of tranche-II into equity, CARE said. Manoj Aggarwal, company secretary of PIL, told Business Standard: “The company has made a presentation to CARE on ratings. We have enough resources to repay the FCCB. The company has a net profit of Rs 61 crore in the first quarter ended June and has net worth of Rs 3,000 crore.”

CARE would continue to monitor the developments regarding the FCCB redemption and their impact on the credit profile. The rating continues to be constrained by risks associated with the project under implementation, past history of debt restructuring, legal risk with respect to the ongoing CBI enquiry on coal mining and cyclicality inherent in the steel business, it said.

There is, on the other hand, the experience of the promoters and record of profitable operations, it noted. The semi-integrated nature of operations, backed by captive coal mines and power plant, diversified revenue profile and comfortable capital structure and liquidity position have also been factored in, CARE said.