CARE downgrades ratings for Shapoorji Pallonji & Co's term loan to 'BBB'

Delay in securing working capital limits triggers rating action

CARE Ratings has downgraded ratings for Shapoorji Pallonji & Company Private Limited’s (SPCPL) long-term loans to “BBB” from “BBB+” due to extended delay in securing working capital limits as compared to earlier estimates of mid Q3FY24.

As a consequence, the turnaround in business operations for the entire fiscal year FY24 is expected to be lower vis-à-vis the level envisaged earlier, the rating agency said in a statement. The outlook on the rating remains negative.

While SPCPL had received sanction of working capital bank limits, the documentation remained pending due to discussions between the working capital lenders and term lenders with regards to security sharing. The same is now expected to culminate by mid Q4FY24 (January-March 2024).

The rating agency said it understands that both the lead bankers have now agreed on the security sharing and the documentation is under process. Availability of the aforesaid working capital limits in a timely manner is critical to facilitate business growth for the balance part of FY24 and thus would continue to remain key rating monitorable.

The rating also factors in the crystallisation of un-envisaged indemnity liability, amounting to Rs 343 crore, towards Sterling and Wilson Renewable Energy Limited which is due by November 30, 2023. SPCPL has said the indemnity payment shall be met by promoters of SPCPL. The payment is expected to be made within the first week of December 2023.

The liquidity of SPCPL also continues to remain stretched with high working capital days and significant debt repayment obligation over the next two years. On a standalone basis, SPCPL has to repay Rs 1,500 crore term debt within three years of first disbursement (i.e. by FY25) and has repaid Rs 382 crore as on September 30, 2023. The balance repayment is contingent upon monetisation of assets including stake sale in Sterling and Wilson Renewable Energy Limited (SWREL).

In view of the weak operational performance of SPCPL, timely infusion of funds from promoters is crucial in case of any shortfall in the anticipated monetisation as well as any envisaged liabilities arising.

The ratings continue to derive strength from the long-established track record of the Shapoorji Pallonji (SP) group in the infrastructure creation space, demonstrated project execution capabilities, healthy and diversified order book position providing medium-term revenue visibility.