Crisil upgrades Jindal Steel NCD ratings to BBB positive as plant restarts

Upgrade reflects improvement in JSPL's business risk profile over medium term

Rating agency Crisil has upgraded its ratings on bank facilities and non-convertible debentures (NCDs) of Jindal Steel and Power Limited (JSPL) to 'CRISIL BBB/Positive/CRISIL A3+' from 'CRISIL BBB-/Stable/CRISIL A3'.

The upgrade reflects expected improvement in JSPL's business risk profile over the medium term, due to to the restart of the 1.8 mtpa coal gasification process (CGP)-based Direct Reduced Iron (DRI) plant at Angul, Odisha, the ratings agency said in a release.

Crisil has also withdrawn its rating of NCDs worth Rs 300 crore at the company's request and on receipt of an independent confirmation of redemption from the debenture trustee. This is in line with Crisil's policy on withdrawal of debt instruments.

The upgrade also factors in a likely improvement in liquidity following the Supreme Court order on resumption of mining activity at Sarda Mines Pvt Ltd (SMPL). The ruling will allow the Delhi-based JSPL to offtake its 12.22 million tonne duty paid iron ore fines inventory lying in SMPL's premises since mining activity was not allowed as the matter was sub-judice.

The company's financial-risk profile is also expected to improve over the medium term due to healthy operating performance and the absence of any significant capex or acquisition plans, which will make free operating cash flows available for debt repayment.

The 'positive' outlook is based on an expected improvement in financial risk profile due to timely completion of refinancing of debt at overseas subsidiaries.

Monetisation of overseas assets may further improve financial risk profile, particularly liquidity, said Crisil.

The Naveen Jindal-led JSPL expects to complete restructuring the debt in its Australian subsidiary and refinancing the debt in its Mauritius subsidiary through dollar bond issuance in fiscal 2020. This, along with sustained improvement in operating performance, can result in consolidated debt/EBITDA (earnings before interest, tax, depreciation, and amortisation) improving to below 3.5 times over the medium term; from around 4.7 times during fiscal 2019.

The ratings reflect JSPL's superior position in the value-added long steel products segment, improving operating efficiencies, and well-diversified operations. These strengths are partially offset by average, albeit improving, financial risk profile, limited raw material integration, and susceptibility to economic cycles.