Crisil downgrades Fenner FD/CP ratings

Crisil has downgraded the ratings of Fenner India's fixed deposit (FD) programme to FAA minus/Stable from FAA and commercial paper (CP) programme to P1 from P1 plus. The rating action follows the announcement by JK Industries, a JK group company, that its board has approved a proposal to raise Rs 37.8 crore from Fenner through a preferential issue of about 3.6 million equity shares at a price of Rs 105 per share.

The ratings on Fenner were placed on watch in February 2006 following the company's announcement that it would invest Rs 50 crore in the equity of JK Paper, a group company, to partly finance JK Paper's multi-layer packaging board project. "There was considerable uncertainty regarding the funding of this investment," Crisil said.

The investment was subsequently made in March 2006 funded by internal accruals and the liquidation of marketable securities. Consequently, the company had to take short term debt to fund its working capital needs, resulting in an increase in the consolidated debt of Fenner and its subsidiaries to Rs 83 crore on March 31, 2006 from Rs 37 crore on March 31, 2005.

Crisil said the recently announced additional investment of Rs 37.8 crore will further stress Fenner's financial risk profile. The company has not so far finalised its plans for funding this investment, but Crisil believes that it will entail additional debt since Fenner's cash accruals of around Rs 30 crore per annum will be required to meet its substantial capital expenditure plans of Rs 70 crore over the next three years. More debt would lead to a significant deterioration in the company's gearing and debt protection measures, affecting its financial risk profile and hence its overall credit profile.