S&P places BB rating with negative implications over Aegis

Standard & Poor's Ratings Services said that it had placed its 'BB-' long-term corporate credit rating on business process outsourcing (BPO) firm Aegis, an Essar Group company, on CreditWatch with negative implications. “We placed the ratings on CreditWatch due to Aegis' weaker-than-expected operating performance and a significant delay in refinancing a large upcoming debt maturity," said Standard & Poor's credit analyst Abhishek Dangra.

The company is in the advanced stages of tying up long-term loans to refinance the $190 million facility due in April 2012. “We believe the significant delay in refinancing may lead to tighter covenants. In case of further delays in the drawdown of the facility under negotiation, Aegis' liquidity can become "weak". In accordance with our criteria, we do not rate a company with weak liquidity above 'B-',” said the note.

The rating agency also added that Aegis reflects the company's weak business profile, and lower margins and higher attrition rate compared with peers' in the competitive BPO industry.

According to S&P the company's Ebitda margin is expected to be about 10-11 per cent for the fiscal year ending March 31, lower than the earlier estimate of 12 per cent.

It also expects Aegis' adjusted-debt-to-Ebitda ratio at about 4.1x-4.7x and a funds from operations (FFO)-to-adjusted-debt ratio at about 17-19 per cent. Pricing pressures, delays in some contract closures, and weaker-than-expected margins of subsidiary AGC Networks Ltd. led to the decline in Ebitda margin.

"We aim to resolve the CreditWatch after we review the documents of the new syndicated bank loan that Aegis will take to refinance the existing bank facility and the company's audited financials for fiscal 2012," said Dangra.

He further mentions that S&P may revise the outlook to stable if- Aegis refinances the bank facility on time; and the company's Ebitda margin for fiscal 2012 is about 12 per cent with the ratio of adjusted debt to Ebitda at less than 3.75x and the ratio of FFO to debt at more than 23 per cent.

Aegis management in the recent time have said that they are evaluating raising funds. And the company might even look at the possibility of public listing. “Aegis will hit revenue of over $1 billion (around Rs 4,940 crore) for the fiscal year 2012. There is a need to raise capital and one of the routes that we might opt is an IPO. We are in talks with investment bankers on the capital raising activity. But we have still not taken any decision,” said Aparup Sengupta, Global Chief Executive Officer, Aegis in an earlier interview.

The company was also keen to get some strategic investors on board while raising funds.

Aegis' working capital cycle has also elongated due to a weak macroeconomic environment, delays in payments, and a longer-than-expected working capital cycle at AGC Networks. However, the management still anticipates that Aegis will end fiscal 2012 with an EBITDA of $120 million and an EBITDA margin of 12 per cent, said the note. It also expects to reduce debt through better working capital management.