Global rating agency Standard and Poor's has downgraded the credit rating of Jain Irrigation Systems Ltd from 'CCC' to 'D' after the company missed payment of principal for its working capital loan.
"We see a high likelihood that the company would be classified as a nonperforming asset by its relationship bankers. Jain Irrigation's bankers have also appointed a restructuring consultant," S&P said in a statement today.
The cross-default clause under the company's guaranteed senior unsecured notes may also be triggered by virtue of Jain Irrigation being a guarantor and obligor on the notes. Overdue debt instruments amount to about 5 per cent of Jain Irrigation's total reported debt obligations as of March 31, 2019. This meets the materiality threshold of the senior notes' cross-default clause.
Meanwhile, the S&P also lowered rating on the company's guaranteed $200 million senior unsecured notes to 'CC' from 'CCC'. It removed the ratings from CreditWatch, where they were placed with negative implications on July 26, 2019.
Delayed collection of government receivables and erratic monsoons in India continue to stress Jain Irrigation's cash flows while delays in the approval of a planned Rs 400 crore incremental bank loan have compounded Jain Irrigation's business stress. It has created a liquidity crisis that has caused the company to delay repayments on its existing working capital facilities--in some cases beyond 30 days, S&P said.
The late exit of monsoons will further cripple Jain Irrigation's cash position over the next two to three months, the rating agency said. "We see a small chance that the company's business will recover from a pickup in retail business or from collection of receivables from its government contracting business," it said.
Jain Irrigation's international operations are sizable, albeit with significant linkages with the Indian operations.
"Therefore, there is a significant likelihood that the company's liquidity crunch would spread to its international business, leading to a default on its US dollar bonds as well," the rating agency said.