S&P downgrades Core Education's credit rating to B

Withdraws rating on company's request

Rating agency Standard & Poor’s (S&P) today cut its long-term credit rating on Core Education and Technologies Ltd’s (CORE) to 'B' from 'B+'. The outlook is negative.

It has removed the rating from CreditWatch. The company rating was placed on watch with negative implications on March 4, 2013. It withdrew the rating at CORE's request. The company requested for withdrawal of rating since it does not currently intend to issue foreign currency bonds.

S&P said, “We lowered the rating on CORE because we believed that the sharp fall in the company's equity prices could negatively affect its access to capital markets and bank funding”. This would put pressure on CORE's refinancing and funding plans and "less than adequate" liquidity.

This would put pressure on CORE's refinancing and funding plans and "less than adequate" liquidity, as our criteria define the term.
The negative outlook at the time of withdrawal reflected CORE's less than adequate liquidity and our expectation that the company's free operating cash flow would remain negative.

CORE has significant term debt maturities of Indian rupee Rs 400 crore in the fiscal year ending March 2014. The company will also need bank support to roll over existing working capital outstanding of Rs 300 crore.

The company’s capital expenditure is likely to be about Rs 300 crore in fiscal 2014, lower than our earlier estimate of Rs 500 crore, it said.

Any significant lengthening of working capital cycles or inability to contain the overall capital expenditure (including intellectual property rights) could further strain the company's liquidity, S&P said.

CORE has also pledged promoter shareholding to avail of loans to fund growth. The depressed share price could continue to pose a risk of margin calls, exposing the company to provide additional collateral or refinance these loans.

Further, banks' willingness to extend other funding at favorable terms may be influenced by the continuing fall in share price, given the outstanding promoter pledged shares.