India Ratings downgrades Jain Irrigation term loans to BB+

Delay in capital infusion is a matter of concern

India Ratings has downgraded Jain Irrigation Systems Ltd’s (JISL) long-Term rating to “BB+” from “BBB” on stretched liquidity position due to delay in infusion of funds worth Rs 1,100 crore.

It also placed company under on Rating Watch Negative (RWN). The RWN indicates that the ratings may be downgraded or remain at the current level, India rating, erstwhile Fitch India, said in statement.

The rating action reflects JISL’s stretched liquidity position because of a greater-than-expected delay in the infusion of funds amounting to $200m into the company.

JISL now expects the capital to be infused in the third quarter of the current financial year, he RWN reflects refinancing risks for the company regarding major repayments due in FY13 (Rs 370 crore) and FY14 (Rs 500 crore) on a consolidated basis.

While JISL has made significant progress in arranging funds to reduce its refinancing risks, uncertainty remains regarding the exact timing and terms of the capital infusion.

India Ratings expects to resolve the RWN by end-December 2012, and the rating outcome will depend on whether the capital infusion happens in Q3FY13 or not.

The capital infusion will help reduce refinancing pressures and improve overall credit profile in the interim. But the capital infusion may increase the overall proportion of foreign currency debt (33%). This is likely to increase JISL’s exposure to foreign exchange risks.