The agency has downgraded the ratings of bank facilities of McLeod Russel India to [ICRA] B-/[ICRA] A4 from [ICRA] BBB-/[ICRA]A3. Icra has also moved the ratings to the ‘Issuer Not Cooperating category’ due to monthly to non-submission of monthly No Default Statement (NDS).
The McLeod Russel stock closed at a 52-week low of Rs 19.85, locked at the lower circuit. A year ago, the stock was hovering around Rs 150. On April 2, when the B M Khaitan Group company faced its first ratings downgrade this financial year, the stock had fallen to Rs 88.55. Icra said the revision of ratings factors in continued pressure on the liquidity profile of the company, notwithstanding the receipt of a majority of the proceeds from the sale of tea estates.
In a bid to pare debt, McLeod had sold 12 estates in Assam and signed agreements to sell more gardens in Assam, Dooars and Africa. The sale had brought down the company's capacity to manufacture from own tea leaves to 42 million kg. McLeod is said to have received Rs 940-950 crore from the sale of gardens.
However, Icra said delays in utilising such sale proceeds in debt reduction resulted in McLeod’s overall leveraging still remaining high. “Icra understands that McLeod’s high financial exposure to weak group firms was largely funded by short-term debt, thus exposing the company to significant refinancing risks,” the rating agency said.
McLeod’s total debt as of March-end was around Rs 1,600 crore. Sources said short-term debt was around Rs 800 crore, a large chunk of which would come up for repayment in September-October. “Although the sale of gardens was aimed at reducing debt, it continued to be high,” they said. Company officials were not available for comment.
Icra noted McLeod had a sizeable debt repayment obligations in the near term which are unlikely to be met from its operational cash flows.
“Timely fruition of deleveraging plans of the company and the group and the trend in tea prices relative to costs would be important factors for determining the overall financial risk profile of the company,” it said.
On the NDS, Icra said it had been consistently following up with McLeod Russel for obtaining the monthly statement and had also placed the ratings under review due to non-submission of NDS in April. “However, the entity’s management has remained non-cooperative. The current rating action has been taken by Icra based on the best-available information on the issuer’s performance,” the agency said.
The group has been paring debt across companies. In Eveready, a partial or full stake sale was under consideration.
Eveready Industries, too, faced a ratings downgrade earlier in the month from India Ratings and Research (Ind-Ra) which downgraded its long-term issuer rating to IND BBB from IND A+ and maintained a negative rating watch on this company.
Ind-Ra reasoned that Eveready’s debt increased to around Rs 384.8 crore as against the debt of Rs 246.1 crore in the last financial year and loans and advances to the group companies (including interest outstanding) stood at Rs 292.8 crore, which led to deterioration in the net leverage of the company.