Icra downgrades Shapoorji Pallonji Group flagship's ratings to BBB+

The flagship company of Shapoorji Pallonji Group, the single-largest shareholder in Tata Sons, had its debt downgraded on Thursday by a domestic rating agency.

The Rs 19,600-crore debt across multiple instruments of Shapoorji Pallonji and Company Private Limited (SPCPL) has been downgraded to BBB+/A2 from A- (with a stable outlook)/ A2+, and placed on rating watch with developing implication, according to a statement.

The delay in securing the requisite working capital limits, which has impacted the engineering, procurement and construction (EPC) operations in FY23, is resulting in modest profitability and muted debt coverage metrics, Icra said.

Its line of credit was put to restricted use as a part of the One Time Restructuring (OTR) plan in March 2022, which constrained order execution in FY23, it said, adding timely sanction of adequate working capital limits remains critical to support the growth in core operations in the medium term.

The 'Watch with Developing Implications' outlook is driven by its business restructuring plan, the agency said, adding that it has been given to understand that the guiding principle is to have SPCPL operating only as the holdco-cum-operating company for the construction business, while the real estate as well as other business verticals will be carved out under separate companies, which will also be owned directly / indirectly by promoters.

The restructuring process is likely to release capital and also limit incremental funding requirement in these businesses from SPCPL, the agency said.

The ratings remain constrained by the leveraged capital structure at the consolidated level and SPCPL has also extended credit support to various subsidiaries and associate companies by way of corporate and DSRA (debt service reserve account) guarantees for the debt availed by them.

The agency said it notes the promoter group is planning to raise capital in the near term and added that going forward, the ability to improve operating profitability along with asset monetisation or capital infusion by the promoter group remains important from the credit perspective.

The consolidated external debt of the company has declined by Rs 15,300 crore to Rs 21,870 crore as on December 31, 2022, from Rs 37,170 crore as on August 31, 2020, and is expected to further reduce through asset divestment, the agency said.

SCPCL's credit strengths include it being the flagship company of the Shapoorji Pallonji Group, which is the single largest minority shareholder in Tata Sons, and its strong execution capabilities, the agency noted.

On the credit challenges front, it pointed out modest profitability in core construction operations and sizeable liabilities.