Standard & Poor's (S&P) on Friday cut its long-term credit rating on Core Education and Technologies (CORE) from 'B+' to 'B' with a negative outlook. The rating agency has removed the rating from CreditWatch. On March 4, the company's rating was placed on watch, with negative implications. The company had requested the rating be withdrawn, as it didn't plan to issue foreign currency bonds.
"We lowered the rating on CORE as we believed the sharp fall in the company's equity prices could negatively affect its access to capital markets and bank funding," S&P said. This would put pressure on CORE's refinancing and funding plans and "less-than-adequate" liquidity. The negative outlook reflected the company's liquidity concerns and expectations its free operating cash flow would remain negative.
CORE's term debt of Rs 400 crore would mature this financial year. The company would need bank support to roll over working capital dues of Rs 300 crore. S&P said in 2013-14, the company's capital expenditure was likely to stand at about Rs 300 crore, lower than the rating agency's estimate of Rs 500 crore.
Any significant prolonging of working capital cycles or inability to contain overall capital expenditure, including on intellectual property rights, could strain the company's liquidity further, S&P said.
CORE has pledged promoter shareholding to avail of loans. The company's depressed share price could continue to pose a risk of margin calls, and it might have to provide additional collateral or refinance loans. Considering the outstanding promoter pledged shares, banks' willingness to extend funding at favourable terms might be influenced by the continuing fall in its share price.
