Sail Debt Scheme Downgraded

The debt programme of Steel Authority of India (SAIL) has been downgraded by a notch to AA- from AA. This is due to a severe erosion in profitability and increase in leveraging.

Giving the rationale for the rating, the Credit Rating Information Services of India (Crisil) has said, the revision is on account of sustained pressure on the companys business lines, increase in competition-domestic and imports, debt-oriented funding of large modernisation programme, and increase in leveraging.

Crisil has also downgraded the fixed deposit scheme of SAIL from FAA+ to FAA. However, the short-term deposits of SAIL aggregating to Rs 120 crore is rated as P1+, indicating the degree of safety regarding the timely payment of financial obligations on the instrument is very strong.

 

Six bonds aggregating to Rs 2,172 crore has been downgraded to AA-, which indicate that the degree of safety regarding timely payment of interest and principal on instrument is high. There are six bond issues that are downgraded which include a bond of Rs 400 crore, Rs 310, Rs 491 crore, Rs 274 crore, Rs 200 crore and Rs 497 crore.

Crisil said it expects continued competitive pressures in the steel industry, which would limit the companys ability to pass on cost increases. It is also unlikely that SAILs financial structure would show significant improvement given the pressures on margins and significantly high exposure on debt. Accordingly, the financial ratios in terms of net margins, interest coverage etc are expected to be depressed in the medium term, said Crisil. The rating continues to factor in SAILs position as the largest manufacturer of steel in the countrya position unlikely to be threatened in the medium-term and long-term growth prospects of the industry.

Crisil has also downgraded the rating assigned to Altos India (AIL) for its fixed deposit programme from FB+ to FD, indicating the issue is either in default or is expected to be in default upon maturity. The revised rating reflects the deteriorating position of the company with reduced business volumes and declining profitability adversely affecting the coverage ratios, high leverage limiting financial flexibility and cash generation from operations largely locked up in increased debtors and inventories.

Besides, ongoing working capital requirements of AILs repayment obligations are relatively high and the strained cash flow situation is likely to affect the companys ability to meet these obligations in timely manner.