/raid1/www/Hosts/bankrupt/TCRAP_Public/190916.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
A S I A P A C I F I C
Monday, September 16, 2019, Vol. 22, No. 185
Headlines
A U S T R A L I A
BOTANY GOLF: Second Creditors' Meeting Set for Sept. 23
CJS GROUP: Second Creditors' Meeting Set for Sept. 23
EPPING 35: First Creditors' Meeting Set for Sept. 24
FAZCHE PTY: Second Creditors' Meeting Set for Sept. 20
HAVEN EARLY: First Creditors' Meeting Set for Sept. 25
IMAGE PAVING: Second Creditors' Meeting Set for Sept. 23
KENSINGTON 88: First Creditors' Meeting Set for Sept. 24
TAYBEL PTY: Second Creditors' Meeting Set for Sept. 24
C H I N A
CHANGDE URBAN: Fitch Gives BB+(EXP) Rating to New USD Unsec. Notes
ENN ECOLOGICAL: Fitch Places 'BB' LT IDR on Rating Watch Positive
HILONG HOLDING: Fitch Gives B+(EXP) Rating to USD Sr. Unsec. Notes
HILONG HOLDING: Moodu's Reviews B1 CFR for Upgrade Amid Refinancing
JIANGSU FANG: Fitch Affirms BB LongTerm IDRs, Outlook Stable
SHIMAO PROPERTY: Moody's Upgrades CFR to Ba1, Outlook Stable
XINJIANG GUANGHUI: Moody's Affirms B2 CFR & B3 Sr. Unsecured Rating
XINYUAN REAL: S&P Cuts ICR to B- on Tight Liquidity, Outlook Stable
YANGO GROUP: Fitch Upgrades IDR to B+, Outlook Stable
YICHANG HIGH-TECH: Fitch Affirms BB+ LongTerm IDRs, Outlook Stable
YUZHOU PROPERTIES: Fitch Affirms BB- LT IDR, Outlook Stable
ZENSUN ENTERPRISES: Moody's Rates New USD Unsec. Notes 'B2'
ZHANGZHOU JIULONGJIANG: Fitch Rates $500MM Bonds Due 2022 'BB+'
ZHENRO PROPERTIES: Fitch Raises Foreign Currency IDR to B+
ZHONGRONG XINDA: Fitch Lowers LT Issuer Default Rating to CCC
I N D I A
4S SPINTEX: CARE Keeps B+ Rating in Not Cooperating Category
AMRAPALI SMART: CARE Moves D Rating to Not Cooperating Category
B D MOTORS: Ind-Ra Migrates 'D' Issuer Rating to Non-Cooperating
BHOLA RAM: Ind-Ra Migrates 'BB-' Issuer Rating to Non-Cooperating
BHUSHAN POWER: JSW Steel Files Appeal to Modify Takeover Terms
CALYPSO AGRO: CARE Lowers Rating on INR10cr LT Loan to 'D'
DEWAN HOUSING: DSP Mutual Fund Recovers Entire Dues of INR150cr
DIVYA AGRO: CARE Keeps D Rating in Not Cooperating Category
FINE WOOD: Ind-Ra Migrates BB+ LT Issuer Rating to Non-Cooperating
HIM CYLINDERS: CARE Migrates D Rating to Not Cooperating Category
HIM VALVES: CARE Migrates D Rating to Not Cooperating Category
JAHNVIS MULTI: CARE Assigns B+ Rating to INR10cr LT Loan
K.V. TEX FIRM: CARE Assigns B+ Rating to INR58.60cr LT Loan
KUBS SAFES: CARE Keeps D Rating in Not Cooperating Category
MOTIL DEVI: CARE Moves B Rating to Not Cooperating Category
PETRO & AGROWAYS: Ind-Ra Migrates 'BB' Rating to Non-Cooperating
PKP FEED: Ind-Ra Affirms 'D' Long Term Issuer Rating
PROGRESSIVE PACKAGING: Ind-Ra Affirms 'BB-' LT Issuer Rating
RAMALINGESHWARA COTTON: CARE Cuts Rating on INR5.10cr Loan to B+
REJEUVINE ENTERPRISES: Ind-Ra Migrates B Rating to Non-Cooperating
SAMARTH AD PROTEX: Ind-Ra Affirms 'BB+' LT Issuer Rating
SANGANI INFRASTRUCTURE: Ind-Ra Moves BB Rating to Non-Cooperating
SHIRPUR GOLD: CARE Lowers Rating on INR37.50cr Loan to 'D'
SHREE KRISHNA: CARE Moves B Rating to Not Cooperating Category
SHRIKRISHNA AVDHOOT: CARE Lowers Rating on INR4.75cr Loan to D
SOLAPUR TOLLWAYS: Ind-Ra Cuts Rating on INR5,884BB Loan to 'D'
SYNDICATE BANK: S&P Affirms 'BB+' ICR, Alters Outlook to Positive
ULTRA HOME: CARE Migrates D Rating to Not Cooperating Category
UNITON INFRA: CARE Keeps B+ Rating in Not Cooperating Category
VESTA EQUIPMENT: CARE Keeps D Rating in Not Cooperating Category
ZEE GOLD: CARE Lowers Rating on INR75cr LT Loan to 'C'
N E W Z E A L A N D
WAGAMAMA: Owes More Than NZ$4.8MM to Creditors, Liquidator Says
S I N G A P O R E
CHINA SKY: Court Grants Further Extension to Judicial Management
S R I L A N K A
DFCC BANK: Fitch Affirms B LongTerm IDRs, Outlook Stable
T A I W A N
UNITED MICROELECTRONICS: Egan-Jones Cuts Sr. Unsec. Ratings to BB
V I E T N A M
VINGROUP JOINT: S&P Alters Outlook to Negative & Affirms 'B+' ICR
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A U S T R A L I A
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BOTANY GOLF: Second Creditors' Meeting Set for Sept. 23
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A second meeting of creditors in the proceedings of The Botany Golf
Club Ltd has been set for Sept. 23, 2019, at 11:00 a.m. at Terrace
Room, Level 2, The Juniors (South Sydney Junior Rugby League Club
Ltd), 558A Anzac Parade, in Kingsford, NSW.
The purpose of the meeting is (1) to receive the report by the
Administrator about the business, property, affairs and financial
circumstances of the Company; and (2) for the creditors of the
Company to resolve whether the Company will execute a deed of
company arrangement, the administration should end, or the Company
be wound up.
Creditors wishing to attend are advised proofs and proxies should
be submitted to the Administrator by Sept. 20, 2019, at 11:00 a.m.
Gregory Alexander Russell of Russell Corporate Advisory was
appointed as administrator of Botany Golf on Aug. 27, 2019.
CJS GROUP: Second Creditors' Meeting Set for Sept. 23
-----------------------------------------------------
A second meeting of creditors in the proceedings of CJS Group
Sydney Pty Ltd has been set for Sept. 23, 2019, at 11:00 a.m. at
Level 7, at 151 Castlereagh Street, in Sydney, NSW.
The purpose of the meeting is (1) to receive the report by the
Administrator about the business, property, affairs and financial
circumstances of the Company; and (2) for the creditors of the
Company to resolve whether the Company will execute a deed of
company arrangement, the administration should end, or the Company
be wound up.
Creditors wishing to attend are advised proofs and proxies should
be submitted to the Administrator by Sept. 20, 2019, at 4:00 p.m.
Shumit Banerjee and Jason Lloyd Porter of SV Partners were
appointed as administrators of CJS Group on Aug. 19, 2019.
EPPING 35: First Creditors' Meeting Set for Sept. 24
----------------------------------------------------
A first meeting of the creditors in the proceedings of Epping 35
Pty Ltd will be held on Sept. 24, 2019, at 3:00 p.m. at Level 2, at
151 Macquarie Street, in Sydney, NSW.
Antony Resnick and Riad Tayeh of de Vries Tayeh were appointed as
administrators of Epping 35 on Sept. 12, 2019.
FAZCHE PTY: Second Creditors' Meeting Set for Sept. 20
------------------------------------------------------
A second meeting of creditors in the proceedings of Fazche Pty Ltd,
trading as CresConstruct, has been set for Sept. 20, 2019, at 11:00
a.m. at the offices of BRI Ferrier, Level 4, at 12 Pirie Street, in
Adelaide, SA.
The purpose of the meeting is (1) to receive the report by the
Administrator about the business, property, affairs and financial
circumstances of the Company; and (2) for the creditors of the
Company to resolve whether the Company will execute a deed of
company arrangement, the administration should end, or the Company
be wound up.
Creditors wishing to attend are advised proofs and proxies should
be submitted to the Administrator by Sept. 19, 2019, at 5:00 p.m.
Alan Scott and Stuart Otway of BRI Ferrier were appointed as
administrators of Fazche Pty on Aug. 16, 2019.
HAVEN EARLY: First Creditors' Meeting Set for Sept. 25
------------------------------------------------------
A first meeting of the creditors in the proceedings of Haven Early
Childhood Education Pty Ltd will be held on Sept. 25, 2019, at 5:00
p.m. at the offices of Worrells, Level 8, at 102 Adelaide St, in
Brisbane, Queensland.
Christopher Richard Cook of Worrells Solvency & Forensic
Accountants was appointed as administrator of Haven Early on Sept.
13, 2019.
IMAGE PAVING: Second Creditors' Meeting Set for Sept. 23
--------------------------------------------------------
A second meeting of creditors in the proceedings of Image Paving
(Mornington) Pty Ltd has been set for Sept. 23, 2019, at 2:30 p.m.
at the offices of Hamilton Murphy, Level 1, at 255 Mary Street, in
Richmond, Victoria.
The purpose of the meeting is (1) to receive the report by the
Administrator about the business, property, affairs and financial
circumstances of the Company; and (2) for the creditors of the
Company to resolve whether the Company will execute a deed of
company arrangement, the administration should end, or the Company
be wound up.
Creditors wishing to attend are advised proofs and proxies should
be submitted to the Administrator by Sept. 20, 2019, at 4:00 p.m.
Richard Rohrt and Leigh Dudman of Hamilton Murphy were appointed as
administrators of Image Paving on Aug. 19, 2019.
KENSINGTON 88: First Creditors' Meeting Set for Sept. 24
--------------------------------------------------------
A first meeting of the creditors in the proceedings of Kensington
88 Pty Ltd will be held on Sept. 24, 2019, at 2:30 p.m. at Level 2,
at 151 Macquarie Street, in Sydney, NSW.
Antony Resnick and Riad Tayeh of de Vries Tayeh were appointed as
administrators of Kensington 88 on Sept. 12, 2019.
TAYBEL PTY: Second Creditors' Meeting Set for Sept. 24
------------------------------------------------------
A second meeting of creditors in the proceedings of Taybel Pty
Limited has been set for Sept. 24, 2019, at 11:00 a.m. at the
offices of Jamieson Louttit & Associates, Penfold House, Suite 72,
Level 15, at 88 Pitt Street, in Sydney, NSW.
The purpose of the meeting is (1) to receive the report by the
Administrator about the business, property, affairs and financial
circumstances of the Company; and (2) for the creditors of the
Company to resolve whether the Company will execute a deed of
company arrangement, the administration should end, or the Company
be wound up.
Creditors wishing to attend are advised proofs and proxies should
be submitted to the Administrator by Sept. 23, 2019, at 4:00 p.m.
Jamieson Louttit of Jamieson Louttit & Associates was appointed as
administrator of Taybel Pty on June 25, 2019.
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C H I N A
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CHANGDE URBAN: Fitch Gives BB+(EXP) Rating to New USD Unsec. Notes
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Fitch Ratings assigned China-based Changde Urban Construction and
Investment Group Co., Ltd.'s (CUCI, BB+/Stable) proposed US dollar
senior unsecured notes an expected rating of 'BB+(EXP)'. The notes
will be directly issued by CUCI.
The final rating on the proposed US dollar notes is contingent upon
the receipt of final documents conforming to information already
received.
KEY RATING DRIVERS
The notes will constitute CUCI's direct, unconditional,
unsubordinated and unsecured obligations and will rank pari passu
with its other present and future unsecured and unsubordinated
obligations. Proceeds will be used for refinancing certain existing
debt and general corporate purposes.
The notes are rated at the same level as CUCI's Issuer Default
Rating (IDR).
RATING SENSITIVITIES
Any change in CUCI's IDR will result in a similar change in the
rating of the proposed notes.
ENN ECOLOGICAL: Fitch Places 'BB' LT IDR on Rating Watch Positive
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Fitch Ratings has placed ENN Ecological Holdings Co., Ltd.'s
Long-Term Issuer Default Rating and senior unsecured rating of 'BB'
on Rating Watch Positive.
The RWP reflects Fitch's expectation that the planned transfer of
ENN Group International Investment Limited's (EGII) 32.81% stake in
ENN Energy Holdings Ltd. (ENN Energy; BBB/Stable) to ENN EC, if
successfully completed, will likely result in ENN EC's rating being
assessed based on the consolidated group credit profile. EGII is
wholly owned by ENN Group chairman Wang Yusuo and his wife. This is
because Fitch expects the linkage between ENN EC and ENN Energy to
be assessed as at least 'Moderate', or even 'Strong', based on
Fitch's Parent and Subsidiary Rating Linkage criteria. The linkage
will be driven by ENN EC's management control of ENN Energy after
the completion of the transfer, on-going related-party transactions
and the potential increase in operational integration between the
two, and a lack of a tight ring-fencing mechanism, although Fitch
does not expect a centralised cash pool for the two entities.
Fitch expects the consolidated group credit profile to be stronger
than for a 'BB' rating. The profile will be underpinned by a
stronger business profile due to ENN Energy's steady cash flow
generation, while the group's financial profile is likely to remain
similar to or stronger than ENN EC's current one.
Many details of the planned funding structure are not available
yet, including the transfer price and the amount of debt, cash and
equity financing. Fitch expects the shares of ENN Energy to be
transferred to be valued at market prices.
Fitch expects to resolve the RWP after closing of the transaction.
There are still uncertainties of the timeline, which could occur
more than six months from now.
KEY RATING DRIVERS
Preliminary Details of the Deal: ENN EC's board gave approval for
the transaction, under which the company will purchase 3.55% of ENN
Energy's shares by cash. For the remaining 29.26%, ENN EC will swap
its shares in Australian LNG company Santos Limited, which are held
by wholly owned subsidiary United Faith Ventures Limited, for the
equivalent value in ENN Energy shares held by EGII. ENN EC will pay
for the rest of the stake in ENN Energy by cash and new shares
issued to EGII. The price of new shares to be issued to EGII will
be CNY9.88 each, but the amount of shares is still unknown.
In addition, ENN EC will raise cash for the acquisition via a
private placement of up to 246 million shares to independent
investors. The price and number of new shares to be issued are
unknown. Further, some important details, including the purchase
consideration and valuation of United Faith Ventures, are still
pending. ENN EC expects internal and due diligence work to be
completed in the coming few months, and this will be followed by
another round of approval from its board and approval from its
shareholders. The proposal is also subject to approvals from the
China Securities Regulatory Commission, the Ministry of Commerce,
and the National Development and Reform Commission. Some
uncertainties in the completion of the deal and timeline remain.
Potential Linkage with ENN Energy: If the deal is completed, Fitch
will applies its Parent and Subsidiary Rating Linkage criteria to
assess the linkage between ENN EC and ENN Energy. The linkage is
likely to be 'Moderate' at least. Mr. Wang will still have
effective control of ENN Energy via his shares in ENN EC. As a
result, management control will be 'Moderate at least. Operational
linkage is also likely to be 'Moderate' or higher, given the
expected synergies along the gas value chain as a result of the
deal. ENN EC also provides construction and engineering service to
ENN Energy. As a result, Fitch is likely to assess ENN EC's rating
based on the consolidated group credit profile.
Stronger Group Business Profile: ENN Energy's EBITDA is more than
three times that of ENN EC and has much lower business risk due to
the steady cash flow from its city-gas distribution business,
compared with ENN EC's more cyclical and volatile cash flows.
Potential synergies could also be achieved along the natural gas
value chain, including to ENN EC's stronger bargaining power for
future LNG upstream acquisitions and ENN Energy's gas procurement
through ENN EC.
Similar to Stronger Group Financial Profile: Assuming ENN EC's
purchase consideration is close to ENN Energy's market valuation
and a reasonable proportion of cash and equity financing, Fitch
expects the consolidated group's financial profile to remain
similar to or stronger than ENN EC's current profile. At end-2018,
ENN Energy and ENN EC had FFO adjusted net leverage of 2.6x and
4.0x, respectively.
DERIVATION SUMMARY
ENN EC's rating is supported by its business diversification, with
operating leverage realised from being part of the ENN Group, and a
moderate financial profile. The rating is constrained by the
company's evolving business profile and a potential increase of
profit from cyclical sectors with higher business risks. Fitch
expects ENN EC's net leverage to decline to below 3.5x, over the
medium term despite potential investment in upstream LNG assets.
ENN EC and Indonesia-based PT ABM Investama Tbk (B+/Negative) have
comparable business profiles, with moderate segment diversification
and exposure to cyclical sectors. ENN EC is rated two notches
higher than ABM due to a larger operating scale and stronger
financial flexibility.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer,
which do not consolidate ENN Energy
- Fitch's thermal coal price of USD90.0/tonne in 2019,
USD80.0/tonne in 2020, USD75.0/tonne in 2021 and USD75.0/tonne
thereafter
- Fitch's brent crude oil price of USD65.0/barrel in 2019,
USD62.5barrel in 2020, USD60.0/barrel in 2021 and USD57.5/barrel
thereafter
- Fitch's UK natural gas price deck of USD5.5/million cubic feet
(mcf) in 2019, USD6.25/mcf in 2020, USD6.5/mcf in 2021 and
USD6.5/mcf thereafter
- EBITDA margin to be maintained at 17%-18% over 2019-2021
- Capex of around CNY774 million in 2019 and slightly lower in
subsequent years
- Acquisitions of around CNY300 million per year in 2020-2022
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Completion of the transaction with ENN Energy leading to an
improvement of ENN EC's credit profile
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- ENN EC's ratings will be removed from RWP if the transaction
with ENN Energy fails to complete
- Fitch may assess ENN EC's credit profile with ENN Energy
proportionately consolidated if the transaction is completed, but a
tight ring-fencing mechanism is introduced to limit ENN EC's access
to ENN Energy's cash flows.
LIQUIDITY
Good Liquidity: Fitch expects ENN EC to have sufficient liquidity
as its cash and cash equivalents on hand of CNY2.1 billion and
unutilised credit facilities of CNY2.5 billion can cover its
short-term debt maturities of CNY3.6 billion as of end-1H19. In
addition, ENN EC's 10.07% stake in publicly listed Santos Limited
offers additional liquidity buffer, if needed.
FULL LIST OF RATING ACTIONS
ENN Ecological Holdings Co., Ltd.
Long-Term IDR of 'BB' placed on Rating Watch Positive
ENN Clean Energy International Investment Limited
'BB' rating on USD250 million 7.5% senior unsecured notes placed on
Rating Watch Positive
HILONG HOLDING: Fitch Gives B+(EXP) Rating to USD Sr. Unsec. Notes
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Fitch Ratings assigned Hilong Holding Limited's (B+/Stable)
proposed US dollar senior unsecured notes an expected rating of
'B+(EXP)' with a Recovery Rating of 'RR4'. The proposed notes are
rated at the same level as Hilong's senior unsecured rating because
they will constitute its direct and senior unsecured obligations.
The final rating on the proposed notes is subject to the receipt of
final documentation conforming to information already received.
Hilong's solid 1H19 results and well-controlled capex support the
company's 'B+' ratings. The ratings also reflect Hilong's leading
market position in drill pipe manufacturing and coating services
for oil country tubular goods (OCTG) in China, expanded footprint
in the global oilfield services market, and continued improvement
in leverage metrics.
KEY RATING DRIVERS
Leverage Improving on Lower Capex: Fitch expects Hilong's leverage
to continue to improve in the coming 12 months on controlled capex
and continued moderate expansion in FFO. Fitch reduced the capex
assumption for 2019 to CNY250 million, from CNY450 million, after
Hilong's capex was more than halved in 1H19. Fitch now expects FFO
adjusted net leverage to drop to around 3.5x by the end of 2019,
from 3.7x at end-2018. The leverage improvement will also be driven
by strong growth in revenue.
Solid 1H19 Results: Hilong's sales and profit continued to recover
in 1H19 despite volatile oil prices. Revenue rose by 24% yoy
compared with 21% yoy in 2018. EBITDA margin remained stable at
around 24% in 1H19, after adjusting for the impact of IFRS 16.
Growth was primarily driven by the oilfield services and oilfield
equipment segments, where revenue rose by 51% yoy and 27% yoy,
respectively. Domestic demand for Hilong's drill pipes has
increased, with sales volume surging by 438% yoy in 1H19. The rise
in oilfield services revenue was due to improved utilisation and
contribution from drilling and workover rigs in Oman and Iraq,
which started operations in 4Q18 and 1Q19, respectively.
Capex to Remain Controlled: Hilong reduced capex by over 62% yoy to
CNY94 million in 1H19 as there was no major expansion in capacity
or purchase of equipment. Most of the capex was for the purchase of
drill pipes for its oilfield equipment rental business. Management
says that the company does not need any major expansion in
production capacity in the next one to two years as Hilong still
has room to increase utilisation and production efficiency. The
company has no plans to buy new drilling rigs unless it secures
major new oilfield services contracts.
Refinancing of US Dollar Notes: Hilong's short-term debt increased
to CNY2,903 million in 1H19 as the outstanding US dollar notes
(CNY2,121 million) were reclassified as current liabilities at
end-June 2019. Hilong's outstanding USD310 million 7.25% senior
notes mature in June 2020 and the company intends to use the net
proceeds from the proposed issuance to pay down its existing senior
notes. Fitch expects Hilong's liquidity to improve once it
completes the refinancing of its outstanding US dollar bonds.
Hilong had CNY675 million of readily available cash at end-1H19 and
CNY419 million of undrawn credit facilities at end-July 2019.
DERIVATION SUMMARY
Hilong's ratings are primarily supported by its leading market
position in drill pipe manufacturing and OCTG coating services in
China and reflect its growing international presence and improving
revenue outlook. However, the ratings are constrained by Hilong's
leverage and limited earnings visibility. Hilong has a weaker
financial profile with higher leverage and lower coverage than
'BB-' rated peers, such as Yingde Gases Group Company Limited
(BB-/Stable).
Hilong has demonstrated more stability in its business operations
and financial metrics than oilfield equipment and services peers
such as Honghua Group Limited (B/Stable) and Anton Oilfield
Services Group (B/Stable). Hilong has a stronger financial profile
in terms of leverage, coverage and FCF margins than Honghua.
Hilong's leverage and coverage are comparable with those of Anton,
but Hilong generates stronger FCF. In addition, Anton's ratings are
constrained by the high revenue contribution from Iraq.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue growth of 14% yoy in 2019 and 6.5% yoy in 2020.
- EBITDA margin of 24.1% in 2019-2020.
- Annual capex of CNY250 million in 2019 and CNY300 million in
2020.
- No acquisition in 2019-2020.
Recovery Rating Assumptions:
Its recovery analysis is based on going-concern value, as it is
higher than the liquidation value. The going-concern value is
derived from Hilong's 2018 EBITDA of CNY769 million with 10%
discount, enterprise value-to-EBITDA multiple of 5.0x, and 10%
administrative claim.
The Recovery Rating assigned to Hilong's senior unsecured debt is
'RR4' because under Fitch's Country-Specific Treatment of Recovery
Ratings criteria, China falls into the Group D of countries in
terms of creditor friendliness. Recovery Ratings of issuers with
assets in this group are capped at 'RR4'.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Consistent improvement in order book and revenue.
- FFO adjusted net leverage remaining below 3.5x for a sustained
period (end-2018: 3.7x).
- Improved debt maturity profile.
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- EBITDA margin below 20% for a sustained period (2018: 23.9%).
- Significant deterioration in receivables collection and working
capital outflow.
- FFO adjusted net leverage above 4.5x for a sustained period.
- No meaningful progress towards refinancing the 2020 US dollar
bond.
LIQUIDITY
Manageable Liquidity: At end-1H19, Hilong had around CNY2,903
million in short-term debt due in 12 months, among which CNY2,121
million was its US dollar senior notes due in June 2020. Hilong
intends to use the net proceeds from the proposed issuance to pay
down its existing senior notes. Fitch expects Hilong's liquidity to
improve once the refinancing of its existing senior notes is
completed. Hilong had readily available cash of CNY675 million and
around CNY419 million of undrawn bank facilities at end-July 2019.
These facilities are uncommitted, as committed credit facilities
are not common in the Chinese banking environment.
HILONG HOLDING: Moodu's Reviews B1 CFR for Upgrade Amid Refinancing
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Moody's Investors Service placed on review for upgrade Hilong
Holding Limited's B1 corporate family and senior unsecured
ratings.
At the same time, Moody's has assigned a B1 rating to the proposed
senior unsecured notes to be issued by Hilong, and has placed the
rating on review for upgrade.
The outlook was changed to ratings under review for upgrade from
stable
Hilong will use the proceeds from the proposed notes to refinance
existing debt, and for working capital and general corporate
purposes.
RATINGS RATIONALE
"The review for upgrade mainly reflects the company's strengthened
business profile, and the improvement in its debt leverage for the
12 months ended June 2019 to a level that exceeds our earlier
expectations," says Chenyi Lu, a Moody's Vice President and Senior
Credit Officer.
"The review for upgrade also reflects the company's prudent
financial management and its proposed refinancing plan ahead of its
upcoming maturities in June 2020," adds Lu.
The review for upgrade will focus on Hilong's ability to sustain
the improvements in its business profile and credit metrics against
the backdrop of industry volatility, as well as its ability to
improve its liquidity and debt maturity profile.
Hilong's debt leverage, as measured by adjusted debt/EBITDA,
improved to 3.6x for the 12 months ended June 2019 from 3.9x in
2018, mainly because of continued earnings improvements.
Moody's expects Hilong's debt leverage will further improve to 3.0x
over the next 12-18 months. Such a level of leverage would position
the company in the Ba range and provide it with a buffer against
its working capital needs and potential industry volatility.
The company has expanded its scale over the last two years. It
posted strong 23.6% year-on-year revenue growth in 1H 2019, mainly
driven by growth in its oilfield equipment manufacturing and
services (up 27.0%) and oilfield services (up 50.6%) businesses.
Moody's projects the company's revenue will grow 12% in 2019 and 9%
in 2020, mainly driven by (1) continued strong demand for its oil
field equipment manufacturing and services, especially in China;
(2) growing business traction in its concrete weighted coating
services and pipeline inspection services; (3) the company's
growing customer base; and (4) its expanded oil and gas-field
services offerings.
Moody's expects the company's adjusted EBITDA margin will improve
slightly to around 26.0%-26.5% over the next 12-18 months from
24.2% for the 12 months ended June 2019, as the company continues
to focus on cost and expense controls, and increases operating
efficiencies with its higher revenue.
Hilong's liquidity profile is modest. At the end of June 2019, the
company had cash and cash equivalents of RMB625 million and
restricted cash of RMB191 million. These liquidity sources and
Moody's expected operating cash flows of around RMB450-500 million
over the next 12 months are insufficient to cover its RMB2.9
billion of short-term debt, including the USD310 million notes due
in June 2020, RMB221 million of bills payable, and estimated RMB150
million of maintenance capital expenditure over the same period.
However, Hilong's liquidity will improve if it completes the
refinancing on satisfactory terms and conditions. A failure to
complete the proposed refinancing plan in a timely manner will
likely result in downward rating pressure, because the company's
refinancing risk would rise toward the maturities of the 2020
notes.
On September 10, 2019, Hilong announced a tender offer for any and
all outstanding existing notes due June 2020 with an outstanding
principal amount of about USD310 million. The tender offer will
expire on September 17, 2019.
Under the offer, for each USD1,000 principal amount of the
outstanding existing notes, the holders will receive USD1,003.75 in
aggregate principal amount of the proposed notes and capitalized
interest in the form of the proposed notes.
Moody's does not regard this tender offer as a distressed exchange
-- which is considered as a default event under Moody's definition
-- because the holders will not incur economic loss as the tender
offer is above the par value of the existing notes.
Moody's review will conclude once the company maintains its
business and financial resilience through short-term industry
volatility, and the company's liquidity improves upon substantial
completion of the transaction on satisfactory terms and
conditions.
The rating also takes into account the following environmental,
social and governance (ESG) considerations.
Firstly, the company is exposed to increasingly stringent
regulations for oil and gas operations and access to new resources.
However, Hilong has to date not experienced any major compliance
violations related to air emissions, water discharge or waste
disposal.
Secondly, on the governance front, the company's ownership is
concentrated in its key shareholder, Jun Zhang, who held a total
58.7% stake in the company at the end of June 2019. This risk is
partially mitigated by the company's track record of good corporate
governance, its regulatory status, and the presence of three
independent board directors.
The principal methodology used in these ratings was Global Oilfield
Services Industry Rating Methodology published in May 2017.
Hilong Holding Limited is an integrated oilfield equipment and
services provider. The company's four main businesses are (1)
oilfield equipment manufacturing and services, (2) line pipe
technology and services, (3) oilfield services, and (4) offshore
engineering services.
The company listed on the Hong Kong Stock Exchange in 2011. Jun
Zhang, the chairman and founder of the company, is the controlling
shareholder, with a 58.7% equity interest as of the end of June
2019.
JIANGSU FANG: Fitch Affirms BB LongTerm IDRs, Outlook Stable
------------------------------------------------------------
Fitch Ratings has affirmed China-based Jiangsu Fang Yang Group Co.,
Ltd.'s Long-Term Foreign- and Local-Currency Issuer Default Ratings
and unsecured note ratings at 'BB' and removed the ratings from
Rating Watch Negative (RWN), on which they were placed in April
2019. The Outlook is Stable.
Fitch has removed the RWN and affirmed the ratings after concluding
that Lianyungang municipality has the ability to provide legitimate
support to Fang Yang, following the revision of its Rating Criteria
for International Local and Regional Governments.
The USD200 million 5.35% notes due 2019, issued by an indirectly
and wholly owned subsidiary - Haichuan International Investment
Co., Ltd. - are unconditionally and irrevocably guaranteed by Fang
Yang Commerce Trade Company Limited (FYCT), also a wholly owned
subsidiary of Fang Yang. The notes are senior unsecured obligations
of FYCT and rank pari passu with all its other obligations. In
place of a guarantee, Fang Yang has granted FYCT a keepwell and
liquidity support deed and a deed of equity interest purchase
undertaking to ensure it has sufficient assets and liquidity to
meet its obligations under the note guarantee. The USD280 million
7.50% senior unsecured notes due 2021, also issued by Haichuan
International Investment, are unconditionally and irrevocably
guaranteed by Fang Yang.
Lianyungang, a prefecture-level municipality located in the
north-eastern corner of Jiangsu province, is part of China's
affluent Yangzi River Delta economic belt and is the manufacturing
and logistics centre in northern Jiangsu province. Fang Yang's
ratings are assessed under Fitch's Government-Related Entities
(GRE) Rating Criteria. Fang Yang is the sole local-government
vehicle responsible for the financing, investment and construction
of infrastructure, land reclamation and attracting outside
investment into Lianyungang Xuwei New District (XND).
KEY RATING DRIVERS
'Strong' Status, Ownership and Control: Fang Yang is a wholly
state-owned limited liability company under Chinese law, which
means it could go bankrupt. Fang Yang's major decisions - M&A,
spinoffs, bankruptcy and liquidation - require municipal
verification and approval. The municipality also closely monitors
Fang Yang's financing plan and debt levels and the company is
required to regularly report its operational and financial result.
The municipality delegates supervision of Fang Yang to the
management committee of Lianyungang's XND and does not plan to
dilute its stake in Fang Yang.
'Strong' Support Record and Expectations: Fang Yang receives
ongoing government subsidies to help service debt, boost financial
flexibility and support capex for urban infrastructure development.
Fitch expects legitimate support to continue in the medium term.
Fang Yang received subsidies of CNY96 million in 2018, which
accounted for 17% of net profit before tax, and debt relief of
CNY1.2 billion, but no asset or capital injections in 2018 or 1H19.
The government also supports Fang Yang by repurchasing
infrastructure projects on a cost-plus basis; this contributes a
large share of its annual revenue.
'Moderate' Socio-Political Implications of Default: Fang Yang is
the municipality's sole developer of large-scale infrastructure
projects and affordable housing within Lianyungang XND; as such,
its default is likely to disrupt the implementation of the
municipality's and central government's development plans. However,
the disruption would be moderated by other local GREs with similar
expertise and responsibilities.
'Strong' Financial Implications of Default: Fang Yang had CNY6.2
billion in receivables from XND management committee, accounting
for 12% of total assets, at end-2018. It also has various funding
channels and issues onshore and offshore bonds. Most of its banking
facilities come from China's large state-owned banks.
A failure by the government to provide timely support, leading to a
default by the company, could jeopardise borrowing options of the
municipality and its GREs. However, direct financial implications
could be cushioned, as Fang Yang's operation is more closely guided
by XND management committee and the large account receivables are
from the committee, not the municipal government.
'b' Standalone Credit Profile: Fang Yang has a weak financial
profile, with low profitability, large capex and high leverage.
Total debt increased by 12% in 2018, with net debt/Fitch-calculated
EBITDA reaching 20.6x, due to high funding pressure from the large
capex. Fitch expects leverage to stay high in the medium-term due
to ongoing infrastructure investment; net debt/Fitch-calculated
EBITDA is likely to reach around 25x by 2023.
RATING SENSITIVITIES
The ratings on Fang Yang could change if Fitch revises its credit
view of Lianyungang municipality.
An increased incentive for Lianyungang municipality to provide
support to Fang Yang, including stronger socio-political and
financial implications of default and support record, may trigger
positive rating action. In contrast, the rating may be downgraded
if there is a significant weakening in the socio-political and
financial implications of default, a weaker support record or a
dilution of the government's shareholding.
An significant improvement of Fang Yang's Standalone Credit Profile
will have a positive impact on the ratings.
Rating action on Fang Yang would lead to similar action on the
ratings on the US-dollar notes.
SHIMAO PROPERTY: Moody's Upgrades CFR to Ba1, Outlook Stable
------------------------------------------------------------
Moody's Investors Service upgraded to Ba1 from Ba2 Shimao Property
Holdings Limited's corporate family rating.
The rating outlook is stable.
RATINGS RATIONALE
"The upgrade reflects our expectation that Shimao's credit metrics
will strengthen over the next 12-18 months, driven by strong growth
in revenue and contracted sales," says Celine Yang, a Moody's
Assistant Vice President and Analyst.
"In addition, the upgrade reflects our expectation that the
diversified income from Shimao's commercial properties, hotels and
property management business, coupled with its prudent financial
management, will help it weather the challenging conditions in
China's property industry," adds Yang, who is also Moody's Lead
Analyst for Shimao.
Moody's expects Shimao's leverage -- as measured by
revenue/adjusted debt -- will trend toward 90%-95% over the next
12-18 months from 76% for the 12 months ended June 2019, supported
by healthy revenue growth following strong contracted sales in the
past one to two years.
At the same time, Shimao's interest coverage -- as measured by
EBIT/interest -- will likely improve to 4.5x-5.0x over the next
12-18 months from 3.9x for the 12 months ended June 2019, supported
by stable profit margins. In addition, Shimao's growing income from
non-property development businesses, including rental income from
commercial buildings, hotels, and other income from property
management will enhance the stability of its interest coverage.
Shimao has a track record of strong sales execution. It reported
41% growth in contracted sales in the first eight months of 2019,
following robust 75% year-over-year growth in 2018.
Moody's expects Shimao to deliver contracted sales growth of around
20% over the next 12-18 months, backed by the company's sizeable
RMB300 billion of salable resources for 2H 2019. Shimao's strong
market position and access to funding also position it well to
benefit from the ongoing industry consolidation amid tight credit
conditions and a challenging operating environment in China's
property industry.
In addition, Shimao's well-located land bank will support its
business growth over the coming 12-18 months. Around 60% of
Shimao's land bank is located in tier 1 and tier 2 cities, where
housing demand remains strong. Another 28% of its land bank is
located in strong tier 3 and tier 4 cities, such as Foshan, Zhao
Qing, where generally favorable economic conditions support housing
demand.
Shimao's Ba1 CFR reflects its (1) strong sales execution through
the property cycles, (2) good geographic coverage and product mix
with diversified land reserves, (3) large operating scale, status
as one of the top developers in China in terms of contracted sales.
The CFR also reflects the growing income from the company's
portfolio of quality investment properties and hotels, as well as
its track record of strong access to domestic and offshore
funding.
On the other hand, the rating is constrained by the company's
moderate credit metrics, although these metrics are likely to
improve gradually over the next 12-18 months.
Shimao's liquidity position is good. The company's cash/short-term
debt registered 163% as of the end of June 2019, mildly improved
from 158% at the end of 2018.
Moody's expects the company will maintain good liquidity through
proactive liquidity management, and that it will retain its good
access to various funding channels, including onshore bonds,
offshore syndicated loans and bank loans and capital market
instruments.
Moody's has considered the concentrated ownership by Shimao's key
shareholder, Ms. Hui Wing Mau, who held a total 69.6% stake in the
company as at August 9, 2019. However, the company's established
internal governance structures and standards, as required under the
Corporate Governance Code for companies listed on the Hong Kong
Stock Exchange, partly mitigates the risk of such ownership
concentration. In particular, it has three independent
non-executive directors (INEDs) out of a total seven board of
directors, and its board has established three committees with
specific written terms of reference to oversee particular aspects
of the company's affairs. In addition, audit and remuneration
committees are chaired by INEDs and at least 75% of the members of
its three committees are INEDs.
Shimao' ratings could be upgraded if it (1) sustains its sales
growth and profit margins while demonstrating strong financial
discipline; (2) maintains a strong liquidity profile, such that
cash/short-term debt exceeds 150%; and (3) improves its credit
metrics, such that adjusted EBIT/interest coverage rises above
4.5x-5.0x and revenue/adjusted debt exceeds 95%-100% on a sustained
basis.
However, Moody's could downgrade the ratings if (1) it becomes less
financially prudent in pursuit of business growth; (2) its sales
and liquidity positions weaken, such that cash/short-term debt
falls below 125%; (3) its gross profit margins weaken below 25%;
(4) its debt leverage deteriorates, with revenue/adjusted debt
falling below 75%; or (5) its interest coverage weakens, such that
EBIT coverage of interest drops below 3.0x-3.5x on a sustained
basis.
The principal methodology used in this rating was Homebuilding And
Property Development Industry published in January 2018.
Shimao Property Holdings Limited (Shimao) is a Grand
Cayman-incorporated Chinese property developer that was listed on
the Hong Kong Stock Exchange in July 2006. It develops residential
properties and owns a portfolio of investment properties, including
hotels. As of the end of June 2019, the company, together with its
58.9%-owned Shanghai A-share listed subsidiary, Shanghai Shimao
Co., Ltd., held a gross land bank of 64 million square meters (sqm)
in 101 cities in China. Shanghai Shimao mainly develops commercial
properties and held an attributable land bank of around 3.2 million
sqm at the end of June 2018.
XINJIANG GUANGHUI: Moody's Affirms B2 CFR & B3 Sr. Unsecured Rating
-------------------------------------------------------------------
Moody's Investors Service affirmed Xinjiang Guanghui Industry
Investment Co., Ltd.'s B2 corporate family rating and B3 senior
unsecured rating.
The outlook is stable.
RATINGS RATIONALE
"The rating affirmation reflects Guanghui Group's demonstrated
ability to grow its business scale while also improving its
leverage," says Roy Zhang, a Moody's Assistant Vice President and
Analyst, and also Moody's Lead Analyst for Guanghui Group.
Guanghui Group's revenue increased to RMB189 billion in 2018, and
has grown at an average rate of 22% over the past 3 years.
Meanwhile, its leverage -- as measured by adjusted total debt to
EBITDA -- decreased to 6.0x at the end of 2018 from a peak of 9.9x
at the end of 2016. These strong results were supported by the
company's leadership position in the domestic auto dealer industry
and by its diversified business operations in its energy and
property segments.
Guanghui Group is the largest shareholder in China Grand Automotive
Services Grp Co., Ltd (CGA, B1 positive), the leading auto dealer
in China (A1 stable) in terms of unit sales, with a large network,
strong geographic coverage, and a diversified brand offering. Its
33%-owned auto dealer business contributed 88% of consolidated
revenue in 2018.
Moody's expects Guanghui Group will continue grow its business
scale and maintain its leverage ratio around 6.0x-6.5x over the
next 12-18 months.
"However, the B2 rating is constrained by Guanghui Group's private
company status, its structural subordination to the listed
operating entities, and its weak liquidity," adds Zhang.
Guanghui Group is a private company, and its corporate governance
and transparency are weaker than those of publicly listed
companies. Furthermore, its lack of access to the equity markets
represents a disadvantage when compared with listed companies.
Guanghui Group operates its auto dealer business through its
33%-owned CGA, and its energy business through its 44%-owned
Guanghui Energy Co., Ltd. As a holding company, Guanghui Group is
also structurally subordinated to these operating entities.
Guanghui Group's liquidity profile is weak due to its high reliance
on short-term debt, which amounted to around RMB66.6 billion at the
end of June 2019 and well exceeded its cash holdings -- including
pledged deposits -- of RMB31.5 billion.
However, the company has a good track record of refinancing its
debt, and also demonstrated good funding access in 2019 when
overall funding conditions were not favorable for privately owned
enterprises in China.
The stable outlook reflects Moody's expectation that (1) Guanghui
Group will maintain its stake in, and control over, CGA; (2) CGA
will maintain its credit profile; and (3) Guanghui Group will be
able to refinance its short-term debt.
The rating also takes into account the following environmental,
social and governance (ESG) considerations.
In terms of environmental and social risks, some of Guanghui
Group's businesses, such as its oil and gas, coal mining and
chemical businesses, are exposed to high risks associated with
tightening emission standards and maintaining operation safety.
However, such risks are partially mitigated by the company's track
record of operational continuity and business diversification.
In terms of corporate governance, in addition to its private
company status, the company's share ownership is concentrated in
Ms. Sun Guangxin, who held a 50.06% stake in the company as of the
end of 2018. Such risk is partially mitigated by the presence of
China Evergrande Group (B1 positive), as the second largest
shareholder, with a 40.97% stake as of the same date.
The B3 senior unsecured bond rating is one notch lower than it
would otherwise be due to structural subordination risk. This risk
reflects the fact that the majority of Guanghui Group's claims are
at its operating subsidiaries and have priority over its senior
unsecured claims at the holding company in a bankruptcy scenario.
The rating could be upgraded if Guanghui Group: (1) improves its
liquidity, such that cash/short-term debt trends towards 1x; (2)
improves its control over its major subsidiaries, such that its
shareholding increases materially and its share pledge reduces
materially; and (3) improves its credit metrics, such that adjusted
debt/EBITDA falls to 5.0x-5.5x and EBITDA/interest exceeds 2.5x on
a sustained basis.
On the other hand, the rating could be downgraded if (1) Guanghui
Group reduces its ownership in, or control over, CGA; (2) CGA's
credit profile weakens materially; or (3) Guanghui Group's
liquidity or credit metrics further deteriorate, such that adjusted
debt/EBITDA exceeds 8.0x and EBITDA/interest falls below 1.0x-1.5x
on a sustained basis.
The principal methodology used in these ratings was Retail Industry
published in May 2018.
Xinjiang Guanghui Industry Investment Co., Ltd. is a private
company that operates in three key segments, namely auto
dealerships, energy and real estate. At the end of June 2019, the
company held a 33% stake in China's largest auto dealer by revenue,
China Grand Automotive Services Co., Ltd.
Founded in 1989, the unlisted Xinjiang Guanghui was 50.06% owned by
the Mr. SUN Guangxin at the end of 2018. Mr. Sun is the chairman,
founder and controlling shareholder.
XINYUAN REAL: S&P Cuts ICR to B- on Tight Liquidity, Outlook Stable
-------------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Xinyuan Real Estate Co. Ltd. to 'B-' from 'B'. S&P also lowered the
long-term issue rating on the company's outstanding senior notes to
'CCC+' from 'B-'.
S&P said, "The stable outlook reflects our view that Xinyuan will
proactively manage its maturing debt and maintain stable leverage
over the next 24 months."
S&P Global Ratings lowered the rating on Xinyuan to reflect the
company's tight liquidity as cyclical sales launches strain its
cash collection. Xinyuan's cash level is likely to remain low,
while its short-term debt will be significant given large "bullet"
maturities (with principal repaid in a lump sum) over the next two
years. In S&P's view, the company is unlikely to improve its
capital structure amid the tough funding environment.
S&P said, "Nevertheless, we believe that further downside to its
liquidity profile appears limited at this stage. We acknowledge
that the company is attempting to expedite sales and cash
collection over the next six to 12 months. We also believe that
Xinyuan is enhancing its treasury management. The company's
proportion of short-term debt to total debt has declined
substantially to 35% or Chinese renminbi (RMB) 8.6 billion as of
June 2019, from 52% or RMB12.3 billion in June 2018.
"That said, we estimate that total debt due over the 24 months to
June 2021 remains very high at above 80%, with capital market
issuance of nearly US$600 million due in 2021. Xinyuan's
unrestricted cash position also decreased to RMB4.6 billion as of
June 2019, from RMB7.7 billion in June 2018, covering only half of
its short-term debt.
"In our opinion, Xinyuan will remain weighed down by its weak
maturity profile. Given that longer-tenor financing channels are
less accessible, particularly from capital markets, Xinyuan will
face difficulties extending its weighted average maturity to above
two years. We estimate that the company's proportion of onshore
bonds, which are unsecured and generally longer dated, to total
debt fell to less than 10% as of June 30, 2019, from 20% a year
ago, after repayments exceeded new issuance significantly." Trust
loans, comprising another estimated 20%-25% of the company's debt,
are also subject to increasing regulatory scrutiny for new
drawdowns and maturity extension. Xinyuan has US$124 million in
senior notes maturing in March 2020 and US$300 million due in
November 2020.
S&P said, "Furthermore, despite Xinyuan's plan to speed up
contracted sales, we expect cyclical sales launches and uneven
sales distribution to continue to weigh on the company's liquidity.
Xinyuan achieved sales of only RMB7.3 billion in the first half of
2019--just about 30% of its full-year target. As such, we expect
bulky sales launches in the second half or the last quarter of the
year, which will increase risks to sales and timely cash
collection."
Xinyuan's land acquisition spending will likely resume in the
second half of 2019 and in 2020. This could pose an additional
burden to the company's cash level. As of June 30, 2019, Xinyuan
had a land bank of 5.2 million square meters, located mainly in
China's tier-one and tier-two cities. The company will likely
replenish land to maintain sales growth, given its relatively
concentrated land bank in Zhengzhou city (the capital of Henan
province) which accounts for about 40% of its existing land
reserve. Additionally, the development progress of some projects
has been dragged down by regulatory hurdles and execution delays.
S&P estimates land spending to be RMB3.5 billion-RMB4.0 billion in
2019 and RMB7.0 billion-RMB8.0 billion in 2020, versus RMB8.5
billion in 2018. Xinyuan has only acquired one parcel of land in
Foshan, Guangdong province, for RMB1.22 billion this year.
S&P said, "We consider Xinyuan's debt-servicing ability as
satisfactory, given its stable leverage and sufficient interest
coverage. We estimate its debt-to-EBITDA ratio will remain at
6.0x-6.1x and its EBITDA interest coverage will be 1.7x over the
next two years. These metrics are supported by the company's
moderate revenue growth, stable margins, and mild debt expansion.
They should help the company roll over most of its existing debts,
especially the bank loans.
"The stable outlook reflects our view that Xinyuan will manage its
maturing debts and achieve targeted contracted sales in the next 12
months. Although we believe the company will remain bound by tight
liquidity and a weak capital structure, it should be able to source
sufficient refinancing to manage its maturities over the next six
to 12 months.
"We could lower the rating on Xinyuan if the company encounters
difficulties in raising sufficient new capital to repay debt, or if
we believe it lacks clear, viable plans for refinancing.
"We may also lower the rating if its liquidity weakens further,
with liquidity sources falling materially below uses or if its
capital structure becomes unsustainable. This could be owing to
significant slippage in contracted sales or funding difficulties,
resulting in material cash depletion or sharp increases in funding
costs.
"We may upgrade the company if Xinyuan's liquidity and capital
structure improve such that its ratio of liquidity sources to uses
is sustainably above 1.2x, with increasing cash on hand covering
short-term debt. At the same time, we would also expect to see the
company's weighted average debt maturity lengthen to above 2.0
years, while its credit metrics of leverage and interest coverage
remain stable."
Xinyuan is a Chinese residential property developer. As of June
2019, the company had projects in 23 cities in China, with total
land reserves of about 5.2 million square meters. The company also
has development projects in Malaysia, the U.K., and the U.S.
Xinyuan was founded in 1997 and is listed on the New York Stock
Exchange. Founder and chairman Mr. Yong Zhang and co-founder Ms.
Yuyan Yang are the largest shareholders, owning approximately 26.1%
and 23.7%, respectively.
YANGO GROUP: Fitch Upgrades IDR to B+, Outlook Stable
-----------------------------------------------------
Fitch Ratings has upgraded China-based homebuilder Yango Group Co.,
Ltd.'s Long-Term Foreign-Currency Issuer Default Rating (IDR) to
'B+' from 'B', and its senior unsecured rating to 'B' from 'B-'
with a Recovery Rating of 'RR5'. The Outlook is Stable.
The upgrade reflects the sustained improvement in Yango's financial
profile since 2018. Its leverage, measured by net debt/adjusted
inventory, improved to 63.8% by end-1H19 from 71.6% at end-2017, as
Yango cut back on its land acquisition in line with its slower
scale expansion after its attributable contracted sales reached a
sufficiently large CNY118 billion in 2018. Fitch believes the
company has the incentive and ability to keep its leverage below
65%, supported by its quality land bank that is sufficient for
development over the next three years.
KEY RATING DRIVERS
Falling Leverage Record: Yango was successful in deleveraging in
2018 and 1H19 from a peak in 2017, fulfilling management's
commitment. Its leverage, measured by net debt/adjusted inventory,
including guarantees provided to and net assets of joint ventures
and associates, improved to 67.8% in 2018 and dropped further to
63.8% in 1H19, after the company cut back on land acquisitions.
Yango spent only 46% of sales receipts on an attributable basis for
land acquisition in 2018, compared with 80% in 2016 and above 100%
in 2017.
Fitch believes the company can consistently deleverage towards 55%
over the next three years based on its current controlled
land-acquisition pace, and keep it at 45%-50% of annual sales
receipts - a level that would maintain a three-year land bank and
support sustainable business development. Fitch also thinks Yango's
milder appetite for growth will lower its risks as growth prospects
in the industry become more challenging and ease the pressure to
acquire land, helping the company cut its leverage. Yango is
targeting moderate total contracted sales growth of 10% yoy from
2019, slowing from 80%-90% yoy over 2017-2018.
Business Scale Supports Ratings: Fitch estimates the company will
maintain an attributable sales scale of above CNY110 billion in
2019 (2018: CNY118 billion). Yango's business scale is larger than
that of most 'BB' rating-category issuers and is a key business
profile strength that gives it diversification benefits. The
company had strong sales momentum in 7M19, achieving CNY68 billion
on an attributable basis, or around 60% of its full-year target of
CN117 billion. Yango had more than CNY60 billion in attributable
saleable resources, mainly in strategic second-tier cities, at
end-July 2019, sufficient for the company to fulfil its 2019
target.
Quality, Diversified Land Bank: Yango had 44 million sq m in total
land bank (attributable: 28.7 million sq m) at end-June 2019,
supporting property sales for around three years. The company's
land bank is nationwide, with about 20% of land bank by saleable
value in tier-1 cities and more than 60% in tier-2 cities across
major economic zones. Yango plans to continue focusing on core
tier-2 and strong tier-3 cities, where Fitch thinks demand is still
resilient and would support mild sales growth for the company.
Healthy Margin: Yango's EBITDA margin, after adding back
capitalised interest in cost of goods sold, was healthy at 29% in
1H19 (2018: 28%). Yango had CNY76.6 billion in unrecognised revenue
as of end-June 2019 with an estimated gross profit margin of 27%,
which will support its margin for the coming year. Average
land-bank cost was low at CNY3,576 per sq m at end-1H19, accounting
for 28% of estimated average selling prices. Fitch expects its
EBITDA margin to be maintained above 25% in the next one to three
years, helped by Yango's multipronged land-acquisition strategy to
keep its land cost low.
Improvement in Debt Structure: Yango has optimised its debt
structure, with its short-term debt dropping to 30% of total debt
in 1H19 from 40% in 2017 and 2018. The company is also replacing
non-bank financing with bank loans in a tightening funding
environment, with non-bank financing decreasing to 31% of total
debt by end-1H19 from 53% at end-2018. Fitch believes the
improvement in the debt structure reflects better access to
financing that gives it greater financial flexibility as the
funding environment for homebuilders remains challenging.
DERIVATION SUMMARY
Yango's diversified nationwide portfolio and large scale are
comparable with those of 'BB' rated Chinese homebuilders, such as
CIFI Holdings (Group) Co. Ltd. (BB/Stable) and stronger than those
of 'BB-' rated peers, which have contracted sales of CNY40
billion-60 billion, including Yuzhou Properties Company Limited
(BB-/Stable). In addition, half of Yango's land bank is located in
tier-1 and core tier-2 cities, which Fitch believes have resilient
demand to cushion against the impact of a homebuilding-sector
slowdown, compared with lower-tier cities.
However, Yango's higher leverage has constrained its rating at
'B+'. The company has taken measures to consistently reduce
leverage over the last two years, but it remains higher than that
of 'B+' rated peers, whose leverage is between 40% and 50%,
including Zhenro Properties Group Limited (B+/Stable) and Guangdong
Helenbergh Real Estate Group Co., Ltd. (B+/Stable).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Attributable contracted sales of CNY110 billion-130 billion
during 2019-2021;
- Land premium accounting for 45%-50% of sales receipts per year
during 2019-2021;
- Construction expenditure accounting for 25%-30% of sales
receipts
per year during 2019-2021;
- Cash collection rate at 80% (2018 and 1H19: 80%)
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Net debt/adjusted inventory sustained below 50%
- EBITDA margin sustained above 25%
- Attributable contracted sales/gross debt sustained above 1.2x
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Net debt/adjusted inventory sustained above 65%
- EBITDA margin sustained below 20%
LIQUIDITY
Improved Liquidity Profile: Yango's liquidity position has improved
due to a better debt structure. Cash on hand, including restricted
cash pledged for bank loans, was CNY41.9 billion at end-June 2019,
which can more than cover short-term debt of CNY34.1 billion. Its
cash-to-short-term debt coverage ratio improved to 1.2x from
0.7x-0.8x at end-2017 and end-2018. Yango also had CNY46.8 billion
in unused bank facilities as of end-June 2019 and an unused quota
of CNY15.3 billion for bond issuance as of end-August 2019,
enabling the company to meet its refinancing needs.
FULL LIST OF RATING ACTIONS
Yango Group Co., Ltd.
- Long-Term Foreign-Currency IDR upgraded to 'B+' from 'B';
Outlook Stable;
- Senior unsecured rating upgraded to 'B' from 'B-'
Yango Justice International Limited
- USD250 million 7.5% senior unsecured notes due 2020 upgraded
to
'B' from 'B-' with a Recovery Rating of 'RR5'
- USD460 million 9.5% senior unsecured notes due 2021 upgraded to
'B' from 'B-' with a Recovery Rating of 'RR5'
YICHANG HIGH-TECH: Fitch Affirms BB+ LongTerm IDRs, Outlook Stable
------------------------------------------------------------------
Fitch Ratings affirmed China-based Yichang High-Tech Investment
Development Co., Ltd.'s Long-Term Foreign- and Local-Currency
Issuer Default Ratings of 'BB+' with a Stable Outlook. Fitch has
also affirmed its US dollar unsecured bond rating of 'BB+'.
YHID invests in and constructs public works, such as land and urban
development, industrial parks and social housing, in the Yichang
High-Tech Development Zone in Hubei province. The entity was the
second-largest infrastructure-investment platform in Yichang
municipality by asset size in 2018.
KEY RATING DRIVERS
'Very Strong' Status, Ownership and Control: YHID was established
under China's company law. The legal status indicates that the
local government is not responsible for the entity's liabilities in
the case of a default. However, Fitch believes the municipality has
a strong incentive to provide extraordinary support due to its sole
ownership of the entity, and the highly interrelated projects
between the two. YHID's overall operations and financing decisions
are subject to the local government's review and approval.
'Strong' Support Record and Expectations: The local government has
provided continuous subsidies of CNY200-300 million each year,
easing the company's financial burden. Favourable tax treatment
(effective tax rate of 10% in 2018) and continuous awarding of new
orders helped to stabilise its operations. Government contributions
for projects also provided financial stability for social-overhead
capital (SOC) investments. Fitch expects constant support to be
forthcoming as it is critical to make SOC projects viable.
'Moderate' Socio-Political Implications of Default: YHID undertook
95% of the government's investment projects in the development zone
in 2018 and continues to play an important role in 2019 (estimated
88% of the total project investment), indicating a default by YHID
could hamper the zone's development. However, the entity's business
remains contained within the zone and Fitch believes a substitute
in the municipality can potentially carry out similar functions,
financing and investment with only a temporary disruption.
'Strong' Financial Implications of Default: Fitch believes a
default of the entity could significantly hinder the local
government's borrowing capacity as a substantial amount of the
entity's debt is associated with SOC projects, making YHID the
second-largest financing platform in the municipality by debt size.
The entity finances its investments through various financial
institutions including policy and local banks. A default by the
entity would hamper the borrowing ability of other groups in the
municipality, leading to increases in the costs of financing.
'b' Standalone Credit Profile: Revenue from construction of SOC
projects accounts for 97% of the total, which Fitch expects to
remain high in light of the projects in the pipeline. This implies
weaker revenue defensibility and operating risk as policy-driven
demand and operations can be volatile upon policy changes.
Continuous investments caused debt to expand by 42% yoy in 2018,
indicating high leverage, measured by Fitch-adjusted net
debt/EBITDA, of 28x, while its net debt to equity remained below
1.0x. This suggests a 'Weaker' financial-profile assessment, which
mainly limits its Standalone Credit Profile.
DERIVATION SUMMARY
YHID's ratings reflect the four factors under its
Government-Related Entities Rating Criteria that give a weighted
score of 30, which is combined with the 'b' Standalone Credit
Profile under Fitch's Rating Criteria for Public-Sector,
Revenue-Supported Debt.
RATING SENSITIVITIES
A revision in Fitch's perception of the sponsor's ability to
provide subsidies, grants or other legitimate resources allowed
under China's policies and regulations would lead to a change in
ratings. Positive rating action may be triggered by a revised
assessment of the socio-political implications of a default,
enhancing the sponsor's incentive to provide legitimate support.
A downgrade may result from a significant weakening of the
assessment of the socio-political and/or financial implications of
a default, or the assessment of its expectations of support, or a
dilution of the government's ownership.
Any rating action on YHID's Long-Term Foreign-Currency Issuer
Default Rating would result in a similar rating action on its US
dollar senior unsecured bond.
YUZHOU PROPERTIES: Fitch Affirms BB- LT IDR, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Chinese homebuilder Yuzhou Properties
Company Limited's Long-Term Foreign-Currency Issuer Default Rating
at 'BB-'. The Outlook is Stable. Fitch has also affirmed Yuzhou's
senior unsecured rating and the ratings on its outstanding US
dollar bonds at 'BB-'.
Yuzhou's ratings are supported by a higher contracted sales scale
and healthy profitability with EBITDA margin at above 25%. Its
good-quality, low-cost land bank should continue to support the
company's wider margin than those of peers. The company's sales
expansion and relatively short land-bank life of about three years,
however, will limit the room for deleveraging.
KEY RATING DRIVERS
Expansion Pressures Leverage: Fitch expects the company's leverage,
measured by net debt/adjusted inventory that proportionately
consolidates joint ventures and associates, to stay at about 40% in
the next 18-24 months (1H19: about 40% after adjusting for unpaid
land premium of CNY2.8 billion, end-2018: 39%). By end-June 2019,
the company had a total land bank of 19.2 million sq m, which is
only sufficient for development in the next three to four years.
Yuzhou's contracted sales will not be able to continue expanding at
its current pace unless the company replenishes its land bank.
Fitch estimates Yuzhou will spend 50%-60% of its annual total
contracted sales on acquiring land (1H19: 49%).
Larger Sales Scale: Yuzhou's total contracted sales climbed by 49%
to CNY40.6 billion in 8M19, driven by a 38% yoy increase in gross
floor area sold to 2.7 million sq m while the contracted average
selling price rose to CNY15,090 per sq m (8M18: CNY13,958). The
company is on-track to achieve its full-year sales target for 2019,
given it has a pipeline of CNY80 billion in saleable resources
scheduled to launch in 2H19, of which 55% by sales value are
projects located in the Yangtze River Delta where housing demand
remains resilient. Fitch expects Yuzhou's total annual contracted
sales to increase to CNY67 billion in 2019 and to more than CNY100
billion in 2021 (2018: CNY56 billion).
Margins to Stay Healthy: Fitch expects Yuzhou's gross profit margin
and EBITDA margin to stay healthy at 27%-28% and 25%, respectively,
in 2019-2020. Yuzhou's gross profit margin was 27% in 1H19 (2018:
31%). By end-June 2019, Yuzhou had unrecognised contracted sales of
CNY68 billion, which carry gross profit margin of about 30% and
will be recognised on the income statement over the next two to
three years. Operating costs remained well-controlled with selling,
general and administrative (SG&A) expenses as a percentage of
revenue falling to 4.2% in 1H19 from 5.3% in 1H18.
DERIVATION SUMMARY
CIFI Holdings (Group) Co. Ltd. (BB/Stable) is Yuzhou's closest peer
in terms of geography, as both companies focus on the Yangtze River
Delta region. Yuzhou is also strongly positioned in the West Strait
Economic Zone and has less exposure to the Bohai Rim region than
CIFI. CIFI has higher attributable contracted sales and lower
leverage, which explains why it is rated a notch higher than
Yuzhou. CIFI has higher sales efficiency than Yuzhou, but a lower
EBITDA margin.
In terms of scale, Times China Holdings Limited (BB-/Stable), which
is focussed in the Greater Bay area, had a similar level of 2018
attributable contracted sales as Yuzhou, at around CNY50 billion.
Times China has adopted a faster churn strategy and thus its EBITDA
margin is lower than that of Yuzhou, as is its leverage.
KWG Group Holdings Limited (BB-/Stable) has slightly smaller
attributable contracted sales than Yuzhou. KWG's focus is in
Guangzhou, although both companies have some exposure to Suzhou,
Shanghai and Tianjin. KWG has a slower churn model than Yuzhou,
which explains its slightly higher EBITDA margin. KWG's leverage is
rising towards the level of Yuzhou.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Annual total contracted sales at CNY67 billion in 2019, CNY86
billion in 2020, and CNY104 billion in 2021 (2018: CNY56 billion)
- 50%-60% of contracted sales to be spent on land acquisitions in
order to maintain a land bank reserve sufficient for three to four
years of development (1H19: about three years)
- Gross profit margin of 27%-28% in 2019-2021 (1H19: 27%)
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Proportionally consolidated net debt/adjusted inventory
sustained below 40%
- Proportionally consolidated contracted sales/gross debt
sustained above 1.2x (2018: 0.8x)
- EBITDA margin sustained above 25%
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Proportionally consolidated net debt/adjusted inventory above
45% for a sustained period
- Proportionally consolidated contracted sales/gross debt below
1.0x for a sustained period
- EBITDA margin below 20% for a sustained period
LIQUIDITY
Sufficient Liquidity: Yuzhou has total cash balances of CNY38.9
billion as of end-1H19, including restricted cash of CNY3.2
billion, which is sufficient to cover debt maturing within a year
of CNY13.6 billion and support its planned expansion. The company
has diversified funding channels to ensure the sustainability of
its liquidity, including bank loans, onshore and offshore bond
issuances, as well as equity placement.
ZENSUN ENTERPRISES: Moody's Rates New USD Unsec. Notes 'B2'
-----------------------------------------------------------
Moody's Investors Service assigned a B2 backed senior unsecured
debt rating to the proposed USD notes to be issued by Zensun
Enterprises Limited. The notes will be irrevocably and
unconditionally guaranteed by Zensun Group Limited (Zensun, B1
stable).
The outlook is stable.
Zensun will use the bond proceeds primarily to refinance certain of
its existing indebtedness, project development and for general
corporate purposes.
RATINGS RATIONALE
"The proposed bond issuance will support Zensun's liquidity and
provide funding for its expansion," says Celine Yang, a Moody's
Assistant Vice President and Analyst.
Moody's expects that Zensun's debt leverage -- as measured by
revenue/adjusted debt -- will trend towards 75% over the next 12-18
months from 103% in 2018, mainly driven by an expected increase in
its debt to fund business growth. Similarly, its interest coverage
will likely weaken to 3.0x over the next 12-18 months from 4.3x in
2018. These credit metrics are appropriate for its B1 corporate
family rating.
Zensun's B1 corporate family rating reflects the company's
recognized brand name, its leading market position in Zhengzhou in
Henan province, and its established track record of city-wide urban
redevelopment projects. These strengths support the company's
ability to acquire new contracts for redevelopment projects.
At the same time, the B1 CFR is constrained by the company's high
geographic concentration in Zhengzhou, and the execution risks
associated with expansion activities outside its home market.
In terms of environmental, governance and social (ESG) factors,
Moody's has considered the company's private company status and
concentrated ownership. However, these risks are partly mitigated
by: (1) its Hong Kong-listed subsidiary, Zensun Enterprise Limited,
which is subject to the corporate governance standards as required
by the territory's listing rules; and (2) the disclosure
requirements that apply to its core onshore subsidiary, Henan
Hongguang Zensun Real Estate Co., Ltd, as a result of its issuance
of onshore bonds. These two subsidiaries account for the majority
of Zensun's operations.
Zensun's liquidity is adequate. Moody's estimates that the
company's cash balance of RMB3.8 billion as of May 2019, including
unrestricted cash and the current portion of pledged deposits,
along with the cash generated from its operations in the next 12-18
months, will be sufficient to cover its maturing debt over the same
period.
The B2 senior unsecured debt rating is one notch lower than the CFR
due to structural subordination risk. This risk reflects the fact
that the majority of Zensun's claims are at its operating
subsidiaries and have priority over its senior unsecured claims at
the holding company in a bankruptcy scenario. In addition, the
holding company lacks significant mitigating factors for structural
subordination. As a result, the likely recovery rate for claims at
the holding company will be lower.
The stable rating outlook reflects Moody's expectation that Zensun
will (1) sustain sales growth both in and outside Zhengzhou; and
(2) maintain adequate liquidity.
Moody's could upgrade Zensun's rating if the company (1) achieves
sustained growth in contracted sales and revenue through the
economic cycles without sacrificing profitability; (2) meaningfully
diversifies its geographic coverage and establishes a track record
of stable sales and profit outside its home market; (3) remains
prudent in its land acquisitions and financial management; and (4)
enhances corporate governance and transparency standards at the
Zensun level.
Credit metrics indicative of a rating upgrade include (1)
EBIT/interest above 3.5x and revenue/adjusted debt above 80% on a
sustained basis; and (2) cash to short-term debt above 1x on a
sustained basis.
On the other hand, Moody's could downgrade the company's rating if
(1) its contracted sales weaken; (2) its profit margins deteriorate
materially on a sustained basis; (3) its liquidity position becomes
impaired; and/or (4) it materially increases its debt leverage.
Credit metrics indicative of a downgrade include EBIT/interest
coverage falling below 2.0x or adjusted revenue/debt falling below
70% on a sustained basis. In addition, a deterioration in its
liquidity, such that refinancing risk rises materially, could also
lead to a downgrade.
The principal methodology used in this rating was Homebuilding And
Property Development Industry published in January 2018.
Zensun Group Limited is a residential developer based in Zhengzhou,
China. The company is 100% owned by Ms. Huang YanPing and Mr. Zhang
Jingguo. At December 31, 2018, Zensun's land bank totaled around
6.74 million square meters of saleable gross floor area.
ZHANGZHOU JIULONGJIANG: Fitch Rates $500MM Bonds Due 2022 'BB+'
---------------------------------------------------------------
Fitch Ratings assigned Zhangzhou Jiulongjiang Group Co., Ltd.'s
(Jiulongjiang; BB+/Stable) USD500 million three-year guaranteed
bonds due 2022 with a coupon rate of 5.6% a final rating of 'BB+'.
The final rating follows the receipt of documents conforming to
information already received and is in line with the expected
rating assigned on August 28, 2019.
KEY RATING DRIVERS
The offshore bonds are rated at the same level as Jiulongjiang's
Issuer Default Rating as they represent unsubordinated and
unsecured obligations of Jiulongjiang, and rank at least pari passu
with all of the company's other present and future unsecured
obligations.
RATING SENSITIVITIES
Any change in Jiulongjiang's Issuer Default Rating will result in a
similar change in the rating of offshore notes.
ZHENRO PROPERTIES: Fitch Raises Foreign Currency IDR to B+
----------------------------------------------------------
Fitch Ratings upgraded Zhenro Properties Group Limited's Long-Term
Foreign-Currency Issuer Default Rating to 'B+', from 'B'. The
Outlook is Stable.
The upgrade follows Zhenro repaying its debt through equity
issuance and internally generated cash flow, which Fitch believes
has lowered its leverage - as defined by net debt/adjusted
inventory, including proportional consolidation of joint ventures
and associates - to around 51%, from 55% in 1H19. Fitch believes
Zhenro can sustain leverage at around 50% as it pursues a less
aggressive growth strategy than in the past two years.
Zhenro's IDR is supported by its high-quality and diverse land
bank, healthy contracted sales growth, sales churn and good margin.
The rating is constrained by a small land bank, which creates some
pressure to replenish land and limits room for significant
deleveraging.
KEY RATING DRIVERS
Sustained Leverage Profile: Fitch believes Zhenro can sustain a
leverage profile commensurate with a 'B+' rating. Leverage
increased to 55% in 1H19, but Fitch believes subsequent debt
repayment from equity issuance and internal cash generation has
lowered leverage to around 51%. Zhenro spent around CNY16 billion
on land acquisitions in 1H19, which represented around half of
1H19's attributable contracted sales. Fitch forecasts Zhenro will
spend CNY35 billion on land acquisition in 2019, resulting in
leverage of around 50%. Chinese homebuilders have been more active
in acquiring land in tier 2 cities during 2019, resulting in higher
land premiums.
More Balanced Capital Structure: The cash/short-term debt ratio was
stable at 1.2x in 1H19. Fitch also expects funding costs to
continue to fall, as more expensive trust loans are replaced with
lower-cost financing. Zhenro has diversified its funding sources
since its IPO in 2018. The percentage of unsecured borrowings
increased to 41% of total debt in 1H19, from 34% in 2018. The
company continues to replace onshore non-bank borrowings with
offshore funding.
High-Quality Land Bank: Zhenro's land bank is focused on tier 2
cities and is diversified across China's eastern, northern,
southeast, western and central regions. No single city contributes
a significant portion to total sales, avoiding reliance and
regional policy risks. This allowed Zhenro to achieve robust
attributable contracted sales growth in the previous three years,
with attributable sales reaching CNY30 billion in 1H19. The average
selling price (ASP) dropped to CNY15,390/square metre (sq m), from
CNY16,770/sq m, due to a lower proportion of sales from tier 1
cities, but was still higher than that of most 'B+' category
peers.
Relatively Small Land Bank: Fitch estimates Zhenro's unsold
attributable land bank at end-1H19 was sufficient for around 2.5
years of development. The company relies on continuous land
acquisition to sustain contracted sales growth. This is likely to
drive Zhenro to replenish land bank at market prices and could
limit its ability to keep land costs low, especially as it acquires
more land parcels in tier 2 cities, where there is more intense
competition on land bidding. Fitch forecasts Zhenro will keep its
land-bank life at current levels, as Zhenro believes a larger land
bank would limit its flexibility to manage policy uncertainties.
Zhenro acquired new land at an average cost of CNY6,311/sq m in
1H19, 31% higher than in 2018. Land costs accounted for about 41%
of contracted sales ASP. Fitch expects the EBITDA margin to
gradually edge down from the 2018 level, following the same trend
as most other Chinese homebuilders.
Significant Minority Shareholders: Total non-controlling interest
in Zhenro's balance sheet increased to CNY10.6 billion in 1H19,
from CNY8 billion in 2018, due to minority shareholders completing
capital injections for projects acquired in 2018. Total
non-controlling interest was 36.5% of total equity in 1H19. Fitch
expects non-controlling interest to stay stable, as Zhenro sought
higher shareholdings in its land acquisitions during 2019, although
this also increased leverage in 1H19.
DERIVATION SUMMARY
Zhenro's leverage of 50%-55% and relatively small land bank
constrains its rating to the 'B+' category, while its sustainable
contracted sales scale and diverse and quality land bank is
comparable with those of 'BB-' peers. Same as Zhongliang Holdings
Group Company Limited (B+/Stable), Zhenro's unsold attributable
land bank at end-1H19 was equivalent to around 2.5 years of GFA
sold, which is shorter than that of fast-churn peers.
Zhenro's leverage is at the higher-end of 'B+' peers, but is
complemented by a high-quality land bank, which drives its
contracted sales scale and satisfactory margin. Attributable
contracted sales of CNY56 billion and an EBITDA margin of 27% in
2018 were comparable with those of 'BB-' peers, such as Yuzhou
Properties Company Limited (BB-/Stable).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Attributable contracted sales of CNY62 billion-85 billion a
year
in 2019-2022 (1H19: CNY30 billion)
- 10% drop in ASP in 2019, from 2018, followed by a 0%-2% rise
each
year in 2020-2022 (1H19: CNY15,382)
- Annual land premium to be maintained at around 2.5 years of
landbank life, accounting for about 40%-55% of attributable
contracted sales (1H19: 54%)
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to
Positive Rating Action
- Leverage (net debt/adjusted inventory) sustained below 45%
- EBITDA margin, after adding back capitalised interest in cost
of goods sold, above 25% for a sustained period
Developments that May, Individually or Collectively, Lead to
Negative Rating Action
- Leverage (net debt/adjusted inventory) above 55% for a
sustained period
- EBITDA margin, after adding back capitalised interest in cost
of
goods sold, below 20% for a sustained period
LIQUIDITY
Sufficient Liquidity: Zhenro had unrestricted cash of CNY25.1
billion, pledged deposits of CNY0.5 billion, restricted cash of
CNY4.6 billion, undrawn bank credit facilities and the unused
onshore and offshore bond issuance quota for refinancing at
end-1H19, enough to cover short-term borrowings of CNY24.9 billion.
Subsequent to 1H19, Zhenro has raised CNY2.8 billion from the debt
and equity capital markets to repay debt and for refinancing
purposes. It repaid CNY5 billion of debt and led to a CNY2.6
billion drop in net debt.
ZHONGRONG XINDA: Fitch Lowers LT Issuer Default Rating to CCC
-------------------------------------------------------------
Fitch Ratings downgraded Zhongrong Xinda Group Co., Ltd.'s
Long-Term Issuer Default Rating to 'CCC' from 'B-'. Fitch has also
downgraded its senior unsecured rating to 'CCC' from 'B-' with a
Recovery Rating of 'RR4'.
The downgrade is driven by the company's deteriorating liquidity
position and weak liquidity management. In addition, ZRXD's FFO
fixed-charge coverage may be lower than its previous expectations
and breach the level at which Fitch would consider negative rating
action.
KEY RATING DRIVERS
Deteriorating Liquidity Position: ZRXD had only CNY3.6 billion of
cash on its balance sheet (which Fitch considers to be restricted
cash as Fitch estimates it is mostly used as security notes
payable) at end-June 2019, compared with short-term debt of CNY8.9
billion. This short-term debt does not include the CNY4.1 billion
of onshore bonds that turn puttable from December 2019 to April
2020. ZRXD also has a USD500 million note due in October 2020. With
the worse-than-expected operating results in 1H19 and tight
liquidity, there is a high probability that onshore bondholders
will exercise their put options.
Weaker Access to Capital Markets: Fitch believes it will be more
difficult for ZRXD to access the onshore and offshore bond markets
in the future. This will be a key constraint until the company can
demonstrate that its credit facilities have normalised and its debt
maturity profile has improved.
1H19 Results Worse Than Expected: Revenue in 1H19 declined by 10.6%
yoy to CNY35 billion. Gross profit fell by 16.6%, with gross profit
margin shrinking to 5.9% from 6.3% in 1H18. ZRXD also had negative
operating cash flow of CNY1.5 billion, which led to cash on hand
declining to CNY3.6 billion by end-June 2019 from CNY6.2 billion at
end-2018. Net debt increased by about CNY3.1 billion to CNY33.2
billion by end-June 2019. The 1H19 results were worse than Fitch
expectation of revenue remaining flat in 2019, stable gross profit
margin and further deleveraging with positive free cash flow.
Its previous negative rating sensitivities for ZRXD included
evidence of worsening in its liquidity profile and a FFO
fixed-charge coverage sustained below 1.5x. Fitch previously
expected this ratio to be 1.6x for the forecast period. After
adjusting its financial forecasts, Fitch now expects ZRXD's FFO
fixed charge coverage to be sustained at or below 1.5x.
Poor Liquidity Management: ZRXD's FFO adjusted net leverage surged
to 8.2x by end-2018 from 6.3x at end-2015 as the company continued
to increase its investments in various financial assets and equity
stakes in other companies that provide minimal cash dividends to
ZRXD. As at end-June 2019, ZRXD held financial assets and long-term
investments of CNY25.9 billion (2015: CNY16.6 billion). Management
previously told Fitch that it is seeking to dispose of some
investments in 2019 to improve liquidity, but none have occurred.
This raises doubts about management's intention to deleverage and
improve liquidity.
In Fitch's view, the company's ability to sell assets in a timely
manner to improve liquidity could be constrained by market
conditions. ZRXD's weak liquidity management is no longer
commensurate with its previous 'B' rating category and is a key
constraint on its rating.
DERIVATION SUMMARY
ZRXD's 'CCC' rating mainly reflects its heightened refinancing risk
due to its weaker balance sheet and poor operating results in 1H19,
which increases the probability that onshore bondholders would
exercise their put options. This is comparable to Shandong Yuhuang
Chemical Co., Ltd (Yuhuang, CCC+), which also has a pressing bond
maturity schedule and high refinancing risk. However, Fitch expects
Yuhuang to have higher FFO fixed-charge coverage at over 2x and
lower FFO adjusted net leverage of 6x-7x in 2019-2020, which
explains the one-notch higher rating relative to ZRXD.
ZRXD is rated one notch higher than PT Agung Podomoro Land Tbk's
(APLN, CCC-) as APLN has already breached several debt covenants
related to EBITDA at end-2018. ZRXD is also rated one notch higher
than Jain Irrigation Systems Limited (JISL, CCC-/Rating Watch
Negative) as JISL is struggling to meet coupon payments on its US
dollar bond.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue decline of 10% for 2019
- Operating EBITDA margin of 5%-6% from 2019-2022
- FFO fixed charge coverage sustained at or below 1.5x in
2020-2022
Recovery Rating Assumptions:
- ZRXD would be liquidated in a bankruptcy because it is an
asset-trading company
- 10% administrative claims
Given the nature of ZRXD's trading business, it would be difficult
to gauge the going-concern EBITDA in a post distressed scenario.
Fitch therefore uses the liquidation value based on 1H19 financials
in its recovery analysis. The liquidation estimate reflects Fitch's
view of the value of inventory and other assets that can be
realised and distributed to creditors.
- Fitch assumes 100% of cash will be drained through payment of
accounts payable
- Fitch applied a haircut of 50% to inventory
- Fitch applied a haircut of 50% to its accounts receivable
- Fitch applied a haircut of 50% to property, plant and equipment
and investment properties
- Fitch applied a haircut of 70% to financial assets,
available-for-sale
investments and long-term equity investments
Based on its calculation of ZRXD's estimated liquidation value
after administrative claims of 10%, Fitch estimates the recovery
rate of the offshore senior unsecured debt to be within the range
for a Recovery Rating of 'RR3'. However, the Recovery Rating is
capped at 'RR4' to reflect the average recoverability for offshore
creditors in China under Fitch's Country-Specific Treatment of
Recovery Ratings criteria
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action:
- Evidence of successful refinancing of upcoming maturing debt
obligations
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- Evidence that liquidity has further deteriorated with no
concrete
refinancing plans for its upcoming debt obligations
LIQUIDITY
Tight Liquidity: At end-June 2019, the company had CNY3.6 billion
of cash on the balance sheet (which Fitch considers to be
restricted cash), but short-term debt was CNY8.9 billion. This
short-term debt does not include the CNY4.1 billion of onshore
bonds that turn puttable from December 2019 to April 2020. As of
March 31, 2019, ZRXD had CNY3.7 billion of unused credit
facilities. These facilities are uncommitted as committed
facilities are uncommon in the Chinese banking environment.
Fitch estimates that continued negative operating cash flow in 2H19
combined with reduced headroom on credit facilities will result in
heightened liquidity and refinancing risks for ZRXD. ZRXD's
liquidity risks may increase further within a short span of time if
holders of the onshore bonds exercise their put options on all the
bonds, as ZRXD would be unable to secure new credit facilities or
issue new notes for refinancing in time.
FULL LIST OF RATING ACTIONS
Zhongrong Xinda Group Co., Ltd.
- Long-Term IDR downgraded to 'CCC' from 'B-'
- Senior unsecured rating downgraded to 'CCC' from 'B-'
with a Recovery Rating of 'RR4'
Zhongrong International Resources Co., Ltd.
- USD500 million 7.25% senior unsecured notes due 2020
downgraded to 'CCC' from 'B-' with a Recovery Rating of 'RR4'
=========
I N D I A
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4S SPINTEX: CARE Keeps B+ Rating in Not Cooperating Category
------------------------------------------------------------
CARE Ratings said the rating for the bank facilities of 4S Spintex
India Private Limited (4SIPL) continues to remain in the 'Issuer
Not Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 19.69 CARE B+; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated October 23, 2018, placed the
rating of 4SIPL under the 'Issuer non-cooperating' category as
4SIPL had failed to provide the information for monitoring the
rating. 4SIPL continues to be non-cooperative despite repeated
requests for submission of information through e-mails, phone calls
and email dated July 18, 2019, July 22, 2019, July 23, 2019, July
26, 2019 and August 13, 2019. In line with the extant SEBI
guidelines, CARE has reviewed the rating on the basis of the best
available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
The rating assigned to the bank facilities of 4S Spintex India
Private Limited (4SSIPL) continues to be tempered by small scale of
operations marked by increase in total operating income during
FY18, financial risk profile marked by leveraged capital structure
and debt coverage indicators, profitability margins are susceptible
to fluctuation in raw material prices and changes in the government
policies, highly fragmented industry and seasonal nature of
business resulted in high dependence on working capital bank
borrowings. The rating also takes into account achieved
satisfactory revenue during first year of commercial operations,
satisfactory PBILDT margin albeit thin PAT margin, Comfortable
operating cycle and stable outlook of textile industry. The rating
however continues to draw its strength from the experience of the
partner for three decade in cotton industry, location advantage
with presence in cotton growing belt of Andhra Pradesh.
Key Rating Weakness
Short track record and nascent stage of operations
The company has short track of business operations. The commercial
operations of the company started in August 2016.
Highly fragmented industry and seasonal nature of business resulted
in high dependence on working capital bank borrowings
The cotton ginning industry is highly fragmented in nature with
several organized and unorganized players. Prices of raw cotton
are highly volatile in nature and depend upon the factors like area
under cultivation, crop yield, international demand-supply
scenario, export quota decided by the government and inventory
carry forward of the previous year. Spinning operators procure raw
materials in bulk quantities to avail discount from suppliers to
mitigate the seasonality associated with availability of cotton
resulting in higher inventory holding period. Hence, there is
significant requirement for working capital funds especially during
the peak season towards stocking of inventory as the procurement is
made directly from farmers on cash basis.
Profitability margins are susceptible to fluctuation in raw
material prices and changes in the government policies
The profitability margins of the company might get affected on back
of fluctuation in raw material prices. Apart, the cotton
prices in India are regulated through fixation of Minimum Support
Price (MSP) by the government, and fortunes of cotton ginners
depend on the price parity between the price fixed by the
government and those prevailing in the market. Moreover, exports
of cotton are also regulated by government through quota systems to
suffice domestic demand for cotton. Hence, any adverse change in
government policy i.e. higher quota for any particular year, ban on
the cotton or cotton yarn export may negatively impact the prices
of raw cotton in domestic market and could result in lower
realizations and profit.
Leveraged capital structure and weak debt coverage indicators The
capital structure of the company remained leveraged marked by the
debt equity ratio and overall gearing ratio at 2.70x and 3.75x
respectively as on March 31, 2018 (as against 2.81x & 3.31x in
FY17), on account of increase in total debt levels due to high
utilization of working capital borrowings as on March 31, 2018 term
loans and working capital bank borrowings. The debt coverage
indicators of the company improved marginally, however, remained
weak during review period marked by interest coverage at 1.49x and
total debt/GCA stood at 17.85x in FY18 (as against 1.34x & 24.07x
in FY18) due to low cash accruals on account of initial year of
operations resulting in under absorption of overheads.
Key Rating Strengths
Experience of the partner for three decade in cotton industry 4SIPL
is promoted by Mr K Purushotham (Managing Director) and Mr D V V
Satyanarayana (Director). Mr K Purushotham has three decades of
experience in ground nut oil industry through its associate concern
(Sri Satya Sai Dall Ground nut oil and Flour Mill). Mr D V
VSatyanarayana has two decades of experience in cotton industry. He
is one of the partners in Sridevi Cotton Ginning Mill. Due to long
term presence in the market, the partners have established
relations with the customer and supplier.
Location advantage with presence in cotton growing belt of Andhra
Pradesh
The company's manufacturing unit is located at one of the cotton
growing coastal belts of Andhra Pradesh (Guntur District). 4SIPL
plans to procure raw cotton from the local farmers and traders
situated in and around Guntur which will result in low
transportation cost. The manufacturing unit is located near the
cotton producing region, resulting in adequate availability of raw
materials at competitive prices and lower logistic expenditure.
Small scale of operations marked by increase in total operating
income during FY18
The company was established in 2012 and commercial operations
started in August 2016. The company was established in 2012
and commercial operations started in August 2016. TOI of the
company has increased by 105% i.e., from INR 14.77 crore in FY17 to
INR 30.34 crore in FY18.
Satisfactory PBILDT margin albeit thin PAT margin
The PBILDT margin of the company declined by 473 bps and remained
satisfactory at 11.22% in FY18 (as compared to 15.95% in FY18). The
company had net losses in FY18 to a tune of INR 0.32 crore.
Comfortable operating cycle
The operating cycle of the company stood at 78 days in FY 18 as
against 66 days in FY17 on account of increase in inventory days.
Stable outlook of textile industry
The future for the Indian textile industry looks promising, buoyed
by both strong domestic consumption as well as export demand.
With consumerism and disposable income on the rise, the retail
sector has experienced a rapid growth. The Government of India has
started promotion of its 'India Handloom' initiative on social
media like Facebook, Twitter and Instagram with a view to connect
with customers, especially youth, in order to promote high quality
handloom products. The Revised Restructured Technology Up
gradation Fund Scheme (RRTUFS) covers manufacturing of major
machinery for technical textiles for 5 per cent interest
reimbursement and 10 per cent capital subsidy in addition to 5 per
cent interest reimbursement also provided to the specified
technical textile machinery under RRTUFS.
Liquidity Analysis
The current ratio of the company is above unity at 1.05x as on
March 31, 2018 mainly on account of relatively high current assets
as compared to current liabilities due to high inventory days. The
company has cash and cash equivalents of INR 0.58 Crore as on March
31, 2018 to meet its liquidity requirements.
4S Spintex India Private Limited (4SIPL) was incorporated in the
year 2012 and promoted by Mr K Purushotham and relatives. The
company has set up a spinning mill with an installed capacity of
8160 spindles of 32 counts. The company has successfully completed
the project without any cost and time overrun and started its
commercial operations from August 1, 2016. The company purchases
the raw material (raw cotton) from local farmers and traders
located at Guntur district. 4SIPL sells the cotton yarn to the
traders, dealers and merchant exporters located at various places
like Tamil Nadu, Andhra Pradesh and Maharashtra. The manufacturing
unit of the company is located at Bhimavaram, Krishna District,
Andhra Pradesh.
In FY18, 4SIPL had a net loss of INR0.32 crore on a total operating
income of INR30.34 crore, as against net loss and TOI of INR0.62
crore and INR14.77 crore, respectively, in FY17.
AMRAPALI SMART: CARE Moves D Rating to Not Cooperating Category
---------------------------------------------------------------
CARE Ratings has migrated the rating on bank facilities of Amrapali
Smart City Developers Pvt Limited (ASCDPL) to Issuer Not
Cooperating category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 270.00 CARE D; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated March 13, 2018, placed the
ratings of ASCDPL under the 'issuer non-cooperating' category as
ASCDPL had failed to provide information for monitoring of the
ratings. ASCDPL continues to be non-cooperative despite requests
for submission of information through e-mail, dated August 8, 2019
and a mail the day after. In line with the extant SEBI guidelines,
CARE has reviewed the rating on the basis of the best available
information which however, in CARE's opinion is not sufficient to
arrive at a fair rating. The rating of UHC bank facilities will now
be denoted as CARE D; ISSUER NOT COOPERATING.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above ratings.
Detailed description of the key rating drivers
At the time of last rating on March 13, 2018 the ratings had taken
into account the continuation in delays in servicing of debt by the
company.
Incorporated in 2010, Amrapali Smart City Developers Pvt Limited
(ASCDPL) is an SPV promoted by Amrapali group. ASCD is developing a
single group housing project in Greater Noida with total saleable
area of 116 lsf on total land area of 61 acres. ASCD has acquired
the land for the said project on lease from Greater Noida
Industrial Development Authority on deferred payment basis for
INR260cr. The company has launched the project in August 2010. In
2019, the Promoters of the company are sent behind the bars in an
alleged case of defrauding homebuyers.
B D MOTORS: Ind-Ra Migrates 'D' Issuer Rating to Non-Cooperating
----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated B D Motors Ltd.'s
(BDML) Long-Term Issuer Rating to the non-cooperating category. The
issuer did not participate in the rating exercise despite
continuous requests and follow-ups by the agency. Therefore,
investors and other users are advised to take appropriate caution
while using these ratings. The rating will now appear as 'IND D
(ISSUER NOT COOPERATING)' on the agency's website.
The instrument-wise rating actions are:
-- INR12.0 mil. Long-term loan (Long-term) due on March 2018
migrated to non-cooperating category with IND D (ISSUER NOT
COOPERATING) rating;
-- INR340.0 mil. Fund-based facilities (Long-term) migrated to
non-cooperating category with IND D (ISSUER NOT COOPERATING)
rating; and
-- INR1 mil. Non-fund-based facilities (Short-term) migrated to
non-cooperating category with IND D (ISSUER NOT COOPERATING)
rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
September 4, 2018. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
BDML has an automobile dealership business. It sells Tata Motors
Ltd.'s passenger vehicles and owns showrooms and workshops across
Burdwan, Durgapur, and Asansol.
BHOLA RAM: Ind-Ra Migrates 'BB-' Issuer Rating to Non-Cooperating
-----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Bhola Ram Steel
Private Limited's Long-Term Issuer Rating to the non-cooperating
category. The issuer did not participate in the rating exercise
despite continuous requests and follow-ups by the agency.
Therefore, investors and other users are advised to take
appropriate caution while using these ratings. The rating will now
appear as 'IND BB- (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating actions are:
-- INR80 mil. Fund-based limits migrated to non-cooperating
category with IND BB- (ISSUER NOT COOPERATING) rating; and
-- INR27.5 mil. Non-fund-based facility migrated to non-
cooperating category with IND A4+ (ISSUER NOT COOPERATING)
rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
September 7, 2018. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
Established in 1988 by Mr. Ajay Kumar Goyanka, Bhola Ram Steel
manufactures steel products at its facility in Digha, Patna.
BHUSHAN POWER: JSW Steel Files Appeal to Modify Takeover Terms
--------------------------------------------------------------
Livemint.com reports that JSW Steel has filed an appeal at the
National Company Law Tribunal (NCLT), contesting the conditions of
its takeover of bankrupt steel mill Bhushan Power and Steel (BPSL).
The appeal is expected to come up for hearing today, Sept. 16, the
report says.
Livemint.com relates that in a filing with stock exchanges, JSW
Steel said: "In continuation of our earlier disclosure dated
September 6, 2019 and pursuant to the provisions of Regulation 30
of the LODR (Listing Obligations and Disclosure Requirements)
Regulations, we hereby inform you that on detailed examination of
the terms and conditions of the NCLT order approving the resolution
plan, it has come to our notice that the approval contains certain
modifications. Further, certain important reliefs sought by the
company have also not been granted. The company has therefore
appealed against the said order dated September 5, 2019 before the
relevant judicial forum."
On September 5, Mint was the first to report that JSW Steel was
unhappy with the conditions of its takeover of BPSL under the
Insolvency and Bankruptcy Code. JSW Steel, which has offered an
upfront cash payment of INR19,700 crore to BPSL's lenders, was the
highest bidder for the stressed steel plant. However, as conditions
of its takeover, JSW Steel had approached the NCLT seeking
protection from future litigation, considering that a forensic
audit of the company's finances had revealed potential fraud and
siphoning off of money by its erstwhile promoters. The allegations
are being investigated by the Central Bureau of Investigation.
According to Livemint.com, the Delhi bench of the NCLT, which
passed the order approving the sale of BPSL's assets to JSW Steel,
also ruled that the operating profits that BPSL earned during its
two-year-long resolution period should be distributed among the
company's financial and operational creditors. JSW believes,
however, that these profits were part of the company's assets and
should stay with BPSL.
Livemint.com relates that a person aware of JSW Steel's appeal at
NCLAT said that the company will make these two key requests--for
protection of its assets after the takeover from possible action
under the Prevention of Money Laundering Act and for the operating
profits to remain within the company and not be redistributed to
lenders.
Livemint.com says the financial creditors of BPSL, led by the State
Bank of India, Punjab National Bank and Bank of India, have held a
series of meetings with the top management of Sajjan
Jindal-promoted JSW Steel to try to discourage them from appealing
the NCLT decision. Mint reported on September 11 that the BPSL's
committee of creditors preferred to finalize terms of a takeover
that were agreeable to all parties rather than run the risk of more
litigation, which would drag on the resolution process. The
resolution process for BPSL has already lasted over 800 days,
against the 330-day deadline mandated by the Insolvency and
Bankruptcy Code.
About Bhushan Power
Bhushan Power and Steel Limited manufactures and markets steel
products. It offers flat products, such as coated products,
galvanized/galvalume, color coated products, cable tapes, and cold
rolled products; and long products, including iron making and
sponge iron products. The company also provides steel pipes, hollow
steel sections, grooved pipes, and carbon steel tubes.
Mahendra Kumar Khandelwal was appointed as the IRP in the case
under an order passed by the National Company Law Tribunal (NCLT)
on July 26, 2017.
Bhushan Power, which owes over INR37,000 crore to a consortium of
lenders led by Punjab National Bank, was among 12 large companies
identified by the Reserve Bank of India against which banks were
directed to initiate insolvency proceedings, according to
LiveMint.com. Barring Era Infra Engineering Ltd, petitions have
been admitted in all other cases, LiveMint.com notes.
CALYPSO AGRO: CARE Lowers Rating on INR10cr LT Loan to 'D'
----------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Calypso Agro Industries Private Limited (CAIPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 10.00 CARE D Issuer not cooperating
Facilities Revised from CARE B-; Stable
Base on the basis of best
available information
Detailed Rationale, Key Rating Drivers and Detailed description of
the key rating drivers
CARE had, vide its press release dated March 12, 2018, placed the
rating of CAIPL under the 'issuer non-cooperating' category as
CAIPL had failed to provide information for monitoring of the
rating as agreed to in its Rating Agreement. CAIPL continues to be
non-cooperative despite repeated requests for submission of
information through email dated August 21, 2019 and numerous phone
calls. In line with the extant SEBI guidelines, CARE has reviewed
the rating on the basis of the best available information which
however, in CARE's opinion is not sufficient to arrive at a fair
rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
The revision in the rating takes into account the continuous delays
by the company in debt repayment obligation. The ability
of the company to repay its debt obligation in timely manner
remains the key rating sensitivity.
Detailed description of the key rating drivers
Key Rating Weaknesses
Delay in debt servicing obligations: As per interaction with the
banker, there are continuous overdrawals in the cash credit
facility and the account has been classified as NPA.
Incorporated in the year 2012, Calypso Agro Industries Private
Limited (CAIPL) was promoted by Mr Vekanta Ramanrao, Mr Prakash
Kharat, Mr Anil Pohekar, Mr Abhijeet Pohekar, Mr Amitabh Pohekar
and Mr Arvind Deshmukh. CAIPL is engaged in the trading of grains.
The major products of the company include pulses, rice and paddy.
DEWAN HOUSING: DSP Mutual Fund Recovers Entire Dues of INR150cr
---------------------------------------------------------------
BloombergQuint reports that asset manager DSP Mutual Fund has
recovered the entire dues of INR150 crore from the troubled
mortgage lender Dewan Housing Finance Corporation Ltd.
BloombergQuint says the third-largest pure-play mortgage lender had
borrowed money from the fund house through the commercial paper
route, but paid only half of the dues in June.
According to BloombergQuint, DHFL has been the most severely
impacted large financiers in the non-banking finance companies'
crisis, that has engulfed the world of finance since September last
when industry major IL&FS went belly up. It has defaulted on
multiple commitments and has also been forced to sell off non-core
assets as the promoters seek to repay loans, the report notes.
DHFL owes around INR1 lakh crore to the system, including over
INR50,000 crore to banks, while the rest are from entities like
mutual funds. It is in talks with bankers for a restructuring and
the lenders are mulling a lifeline of INR7,000 crore,
BloombergQuint relates citing media reports.
In a statement, DSP Mutual Fund on Sept. 9 said the remaining
amount of INR75 crore was paid on Sept. 7, resulting in a "complete
recovery" for the commercial papers held its various mutual fund
schemes, BloombergQuint relays.
"Over the past two months we have been engaged with the issuer for
the pending recoveries," it said, notes the report.
After the payment, there has been a positive impact on seven of the
funds, it said, listing out the exact valuation gains which range
from 0.19 percent to 2.73 percent, BloombergQuint adds.
About Dewan Housing
Dewan Housing Finance Corporation Limited (DHFL) operates as a
housing finance company in India. The company's deposit products
include fixed deposit products for individuals, and trusts and
institutions; and corporate, recurring, and Wealth2Health deposits
products. It also offers home loans, which include home improvement
loans, home construction loans, home extension loans, plot
loans/land loans, plot and construction loans, and balance transfer
of home loans, as well as home loans for the self-employed; small
and medium enterprise loans, including property term, plant and
machinery, medical equipment, and business loans; mortgage loans,
such as loans against property, loan for purchase of commercial
premises, and loan through lease rental discounting; and NRI home
loans.
As reported in the Troubled Company Reporter-Asia Pacific on June
21, 2019, ICRA downgraded the rating on the INR850-crore commercial
paper programme of Dewan Housing Finance Corporation Limited (DHFL)
to [ICRA]D from [ICRA]A4. The rating has been removed from Watch
with Negative Implications.
DIVYA AGRO: CARE Keeps D Rating in Not Cooperating Category
-----------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Divya Agro
Roller Flour Mills Private Limited (DFPL) continues to remain in
the 'Issuer Not Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 9.60 CARE D; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated June 8, 2018, placed the
rating of DFPL under the 'Issuer non-cooperating' category as Divya
Agro Roller Flour Mills Private Limited had failed to provide
information for monitoring of the rating. Divya Agro Roller Flour
Mills Private Limited continues to be non-cooperative despite
repeated requests for submission of information through e-mails,
phone calls and email dated July 18, 2019, July 22, 2019, July 23,
2019, July 26, 2019 and August 13, 2019. In line with the extant
SEBI guidelines, CARE has reviewed the rating on the basis of the
best available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
The rating assigned to the bank facilities of Divya Agro Roller
Flour Mills Private Limited continues to be tempered by ongoing
delays in the servicing the debt obligations due to stressed
liquidity position, weak financial risk profile, continues
incurring of net losses resulting . However, the ratings also takes
into account increase in total operating income, infusion of
capital by promoters and comfortable operating cycle days.
Key Rating Weakness
Stretched liquidity resulting in delays in debt servicing
The company has been facing stressed liquidity condition, on
account of delay in commencing of commercial operation. While
the operations have not commenced, the debt repayment obligation
has commenced. Consequently, there have been delays in
meeting repayment of debt obligations. Small scale of operations
marked by increased total operating income (TOI) along with
continues incurring of losses during the review period. Despite of
presence of the company in the market for more than 8 years, the
scale of operations of the company remained small marked by TOI at
INR6.8 crore & INR3.69 crore in FY18 & Fy17 respectively. The
company has also incurred losses during the last two years.
Improved capital structure and debt coverage indicators, however,
remained weak
The capital structure of the company remained leveraged marked by
debt equity and overall gearing ratio at 4.45x as on March
31, 2018 due to high debt levels as on closing balance sheet date,
however, improved from 7.36x ason March 31, 2017. Also, the
debt coverage indicators of the firm remained weak marked by total
debt/GCA and interest coverage ratio at 31.57x & 1.29X in
FY18.
Key Rating Strengths
Experience of promoter for more than three decades in the similar
line of business: Mr Nandlal Vijaywargi, one of the promoters, has
38 years of experience in similar line of business, having
incorporated 9 companies, one of them being, Real Agro Industries
Private Limited, a wheat flour manufacturing company, incorporated
in 2009, which supplies wheat flour to Britannia Industries
Limited. Due to promoter extensive experience in the industry, the
company is likely to be benefited from established healthy
relationship with key suppliers and customers.
Infusion of capital by promoters
The promoters of the company have infused a paid up equity share
capital of INR1.30 crore in FY18.
Satisfactory PBILDT margin
The PBILDT margin of the company improved and remained at 26.12% in
FY18 as against 20.40% in FY17 due to increase in scale of
operations by ~78%.
DFPL was incorporated on December 11, 2011, by Mr Kapil Gupta, Mr
Vishal Vijaywargi and Mr Nandlal Vijaywargi for setting up a
manufacturing unit for the production of various grain-based flours
(viz, Maida, Suzi, Atta and Bran) with an installed capacity of
60,000 metric tonnes per annum. The total cost of the project was
about INR14.34 crore and the company had expected the unit to
achieve commercial operations in April 2015. However, due to few
unforeseen circumstances the same was revised to April 2016. The
company has entered into sale agreement with ITC Limited.
In FY18, DFPL had a net loss of INR0.50 crore on a total operating
income of INR6.58 crore, as against net loss and TOI of INR0.62
crore and INR3.69 crore, respectively, in FY17.
FINE WOOD: Ind-Ra Migrates BB+ LT Issuer Rating to Non-Cooperating
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Fine Wood Products
Private Limited's Long-Term Issuer Rating to the non-cooperating
category. The issuer did not participate in the rating exercise
despite continuous requests and follow-ups by the agency.
Therefore, investors and other users are advised to take
appropriate caution while using these ratings. The rating will now
appear as 'IND BB+ (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating actions are:
-- INR50 mil. Fund-based facilities migrated to non-cooperating
category with IND BB+ (ISSUER NOT COOPERATING) rating; and
-- INR250 mil. Non-fund-based facilities migrated to non-
cooperating category with IND A4+ (ISSUER NOT COOPERATING)
rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
August 31, 2018. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
Fine Wood Products, founded and managed by the Garg family
manufactures plywood and markets its products under the brand Fine
Ply.
HIM CYLINDERS: CARE Migrates D Rating to Not Cooperating Category
-----------------------------------------------------------------
CARE Ratings has migrated the rating on bank facilities of Him
Cylinders Limited (HCL) to Issuer Not Cooperating category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 18.00 CARE D; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from HCL to monitor the rating
vide email communication dated August 19 2019, August 16 2019
August 14 2019 and numerous phone calls. However, despite CARE's
repeated requests, the company has not provided the requisite
information for monitoring the ratings. In line with the extant
SEBI guidelines, CARE has reviewed the rating on the basis of the
best available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating. The rating on Him Cylinders
Limited's bank facilities will now be denoted as CARE D; ISSUER NOT
COOPERATING.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above ratings.
Detailed description of the key rating drivers
At the time of last rating on March 5, 2018 the following were the
rating weaknesses
Key Rating Weaknesses
Delays in servicing of debt obligations: There have been on-going
delays by HCL in servicing of its debt obligations, resulting from
stressed liquidity.
HCL, incorporated on August 19, 1983 as a private limited company,
belongs to the Him Group of Companies of New Delhi and is engaged
in manufacturing of LPG Cylinders. Subsequently, it was converted
into a public limited company in July 1999. The manufacturing
facility of the company is located in Una district of Himachal
Pradesh having an installed capacity to manufacture 15.56 lakh
cylinders per annum. The company manufactures the products
according to the client's specifications and sells its entire
output to the public sector oil marketing companies (OMC).
HIM VALVES: CARE Migrates D Rating to Not Cooperating Category
--------------------------------------------------------------
CARE Ratings has migrated the rating on bank facilities of Him
Valves And Regulators Private Limited (HVRPL) to Issuer Not
Cooperating category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 18.14 CARE D; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from HVRPL to monitor the rating
vide email communication August 19 2019, August 16 2019, August 14
2019 and numerous phone calls. However, despite CARE's repeated
requests, the company has not provided the requisite information
for monitoring the ratings. In line with the extant SEBI
guidelines, CARE has reviewed the rating on the basis of the best
available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating. The rating on Him Valves And
Regulators Private Limited's bank facilities will now be denoted as
CARE D; ISSUER NOT COOPERATING.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above ratings.
Detailed description of the key rating drivers
At the time of last rating on March 5, 2018 the following were the
rating weaknesses
Key Rating Weaknesses
Delays in servicing of debt obligations: There have been on-going
delays by HVRPL in servicing of its debt obligations, resulting
from stressed liquidity.
Him Valves and Regulators Private Limited (HVRPL), incorporated on
June 10, 1997, is promoted by Shri Ashok Prakash Raja and Shri
Shanti Swarup Raja. The company is engaged in manufacturing of
valves and regulators with an installed capacity of 17 lakh units
and 12 lakh units per annum respectively. The manufacturing
facility of HVRPL is located in Himachal Pradesh and is accredited
with ISO 9002:1994. The main raw materials used for manufacturing
are zinc alloys and brass rods which are mainly procured
domestically from local agents. The company manufactures the
products according to the client's specifications and sells its
output to the public sector oil marketing companies (OMC).
JAHNVIS MULTI: CARE Assigns B+ Rating to INR10cr LT Loan
--------------------------------------------------------
CARE Ratings has assigned rating to the bank facilities of Jahnvis
Multi Foundation (JMF), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank
Facilities 10.00 CARE B+; Stable Assigned
Detailed Rationale & Key Rating Drivers
The rating assigned to the long bank facilities of JMF are
constrained by small scale of operations with low capitalization,
moderately stretched liquidity position, project funding &
execution risk and susceptibility to adverse regulatory changes in
education sector.
The rating, however, derives strength from the long track record of
operations of the trust, well experienced management in
the education sector, fairly diversified courses offered by trust
with growing enrolment and average financial risk profile. The
ability of JMF to increase its scale of operations by increasing
student enrolment amidst the increasing competition & limited
reach, attracting experienced faculty for its institutes and
improving liquidity position are the key rating sensitivities.
Detailed description of the key rating drivers
Key rating Weakness
Small scale of operations with low capitalization: The scale of
operations of the trust remained small with total operating income
(TOI) stood in the range of INR3.01 crore to INR6.40 crore during
FY16-FY19. However, the same has constantly increased due to
increase in enrollments on the back of addition of new courses
during said period.
Moderately stretched liquidity position: The liquidity position of
the trust remained moderately stretched marked by weak current
ratio of 1.10x as on March 31, 2019 (vis-Ã -vis 0.66 times as on
March 31, 2018). Also, the collection period stood high at 78 days
in FY19 due to flexibility given to students to pay its fees in
installments. On account of the same, the average utilization for
its working capital limit stood high 82.04% during past 12 months
ended July 2019.
Project funding and execution risk: JMF is planning for additional
construction (floor rise from 5 to 8 Floors) at the exiting school
& college building (Ground + Four floors) in Dombivali owned by the
trust. The project is undertaken mainly to incorporate more
classrooms in order to increase the enrollment of students. The
total cost of the project is estimated at INR10.00 crore, proposed
to be funded through term loan from bank of INR7.00 crore and rest
through internal accruals. The trust exposed to project funding and
execution risk since till date the trust has not incurred any cost
against the same and also the term debt also not tied up.
Susceptibility to adverse regulatory changes in education sector:
The operations of primary/secondary/higher secondary and higher
educational institutes are governed by various governmental and
quasi-governmental agencies such as universities and state
governments. The society needs to regularly invest in its workforce
and infrastructure. Also, the course fee charged from the students
is not decided entirely by the trust, but by the affiliating
universities, state government and other regulatory agencies. Thus,
the regulated nature of industry restricts any substantial increase
in revenues for JMF.
Key rating Strengths
Long track record of operations of the trust with well experienced
management in the education sector: JMF has been operational for
over 12 years and over the years of existence it has developed a
brand. The trustees of JMF are qualified, experienced and are
involved in the business and social work for more than two
decades.
Fairly diversified courses offered by trust with growing enrolment:
JMF imparts education from primary to post-graduation levels
covering all major streams viz. primary, secondary, higher
secondary and diploma & graduation courses across science, arts &
commerce, Computer, IT, etc. The institute has seen growing student
enrolment as observed from the trend of last three years.
Average financial risk profile: The SBILDT margin has remained
healthy and fluctuating in the range of 23.84% to 55.71% during the
period FY16-FY19 due to educational services nature of its
operations. Further, SAT margin has also remained healthy in the
range of 7.48% to 25.56% during said period. The capital structure
of JMF stood comfortable with an overall gearing of 0.50 times as
on March 31, 2019 (vis-Ã -vis 0.86 times as on March 31, 2018).
Liquidity Analysis:
The liquidity position is marked by weak current ratio and quick
ratio at 1.10 times March 31, 2019 (vis-Ã -vis 0.66 times as on
March 31, 2018). Further, cash flow from operating activities stood
positive at INR2.49 crore as on March 31, 2019. The average fund
based working capital limits remained 82.04% utilization during
past 12 months ended July 2019. Moreover, free cash and bank
balances of INR0.79 crore as on March 31, 2019 (vis-Ã -vis INR0.70
crore as on March 31, 2018).
Established in the year 2002, Jahnvis Multi Foundation (JMF) is an
educational trust registered under Bombay Public Trust Act 1950 for
operating educational institutions. The trust is also having
registration for Foreign Contribution Regulation Act (FCRA) and is
ISO 9001: 2008 certified institute. JMF operates schools and
colleges in Dombivali (Thane) and Dawasa (Nagpur) which are
recognized by State Board of Maharashtra, Mumbai University and
Central Board of Secondary Education. Over the years, the trust has
diversified in terms of offering courses and currently it operates
from primary to post graduation levels across various streams with
enrolment of around 3205 students in FY19 (vis-Ã -vis 3020 students
in FY18).
K.V. TEX FIRM: CARE Assigns B+ Rating to INR58.60cr LT Loan
-----------------------------------------------------------
CARE Ratings has assigned rating to the bank facilities of K.V. Tex
Firm (KVT), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long term Bank
Facilities 58.60 CARE B+; Stable Assigned
Detailed Rationale & Key Rating Drivers
The rating assigned to the bank facilities of KVT is constrained by
small scale of operation with geographical concentration, leveraged
capital structure, highly competitive textile retailing industry
and partnership nature of constitution. The rating also factors in
the debt funded expansion for the Pondicherry showroom which
however has remained nonoperational on account of non- receipt of
approvals for a considerable period of time and in the interim the
repayments have commenced, thereby leading to stressed debt
coverage indicators. However, the rating derive strength from
experience of the promoters and long track record of operation.
Going forward, ability to reopen the Pondicherry showroom in a
timely manner and to increase in scale of operations in Pondicherry
and Cuddalore showrooms and to improve the capital structure and
liquidity by managing working capital effectively would be key
rating sensitivities.
Detailed description of the key rating drivers
Key Rating Weaknesses
Small scale of operation
KVT has two showrooms in Cuddalore and Pondicherry which were
opened in 2013 and 2018 respectively. The firm's scale of operation
is small with a total operating income in the range of INR85.53 –
INR126 crore for the past five financial year. KVT opened its
Pondicherry showroom in May 15, 2018 to have a wider presence.
However, the showroom was subsequently closed down in June 02, 2018
by Municipality and Planning authority of Pondicherry citing
absence of trade license and building approval, and inadequate
parking facility.
Leveraged capital structure
The firm's capital structure is leveraged with an overall gearing
of 3.07x as on March 31, 2019.
Geographic concentration and presence in a competitive industry
KVT's total operating income is concentrated in a single showroom.
Though the firm has established track record in the region, the
prospects of the firm is highly dependent on the economic prospects
of these region. Textile retailing is a highly
competitive industry with large presence of organised and
unorganised players. The firm faces competition from other
players such as Sumangali Silks and other unorganised small
retailers.
Constitution of the entity being a partnership firm
K.V.Tex is a closely held partnership firm which is inherently
vulnerable to capital withdrawal risk.
Key Rating Strengths
Experienced promoters and long track of operations
The promoters Mr. Kannapan and Mr. Venkateshwaran have long
experience in the textile retailing industry and they have been in
this line of business since the inception of their first showroom
in Cuddalore during 1990. Subsequently, they established new bigger
showroom in Cuddalore in 2013 under newly incorporated K.V. Tex
Firm. Mr Venkateshwaran looks after the day to day operations of
the textile showrooms.
Liquidity: Stretched
KVT's liquidity is stretched with higher repayment obligations
against the accruals. The firm's operating cycle has also increased
due to higher inventory period during FY19. Stretching operating
cycle during FY19 resulted in higher level of WC utilisation with
average utilisation of around 88% for the past twelve months period
ended June 2019. The company had modest cash balance of
INR1.24crore as on March 31, 2019.
K.V. Tex Firm (KVT) was incorporated in 2013 as a partnership firm
by two brothers Mr Venkateshwaran and Mr Kannappan. The firm is
engaged in textile retailing and it has two showrooms in Cuddalore,
Tamilnadu and Pondicherry with area of 26250 sq. ft and 15200 sq.
ft respectively. The promoter brothers have been operating in the
textile retailing business since 1990.
KUBS SAFES: CARE Keeps D Rating in Not Cooperating Category
-----------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Kubs Safes
and Locks Private Limited (KSLPL) continues to remain in the
'Issuer Not Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 28.76 CARE D; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated June 14, 2018, placed the
rating(s) of KSLPL under the 'issuer non-cooperating' category as
KSLPL had failed to provide information for monitoring of the
rating. KSLPL continues to be non-cooperative despite repeated
requests for submission of information through e-mails, phone calls
and email dated June 22, 2019, 2019, August 6, 2019, August 7, 2019
& August 8, 2019. In line with the extant SEBI guidelines, CARE has
reviewed the rating on the basis of the best available information
which however, in CARE's opinion is not sufficient to arrive at a
fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
At the time of last rating on June 14, 2018 the following were the
rating strengths and weaknesses:
Key Rating Weakness
Delay in debt servicing
The company has been incurring cash losses leading to weak
liquidity position. On account of this the company had delayed its
debt servicing in the recent past.
Financial risk profile marked by cash losses, weak debt protection
metrics and elongated working capital cycle
The company has reported weak financial profile marked by high cash
losses for the three audited financial years ended FY18 and weak
debt coverage indicators which stood stressed owing to operating
losses. Further, the operated cycle of the company remains
elongated, however improved in FY18 marked by 151 days as against
174 days in FY17.
Key Rating Strengths
Experience of the promoters in trading of security equipment
The promoters have nearly 10 years of experience in marketing and
distribution of physical security products in the Middle East. Mr.
Bhasi Pazhat, one of the promoters, has experience of over three
decades in managing various lines of business in the Middle East.
He is ably assisted by Mr. P. Somasundaran and Mr. Venugopalan, who
possess four decades of experience, primarily with Al Nabooda
Group. The directors of KSL have interests in other entities such
Al Nabooda Interiors LLC (Dubai), Al Nabooda Insurance Brokers LLC
(Dubai), Toli Floor Middle east LLC (Dubai), Total Offis Interiors
& Solutions LLP (Bangalore) and Hospitality Catering LLC (Abu
Dhabi).
Improved scale of operations
The scale of operations of the company remains small, however
improved compare to previous year. It is marked by total operating
income of INR11.85 Crore in FY18 as against INR8.73 Crore in FY17.
KSLPL is engaged in the business of manufacturing and trading of
various physical security equipment such as safe deposit lockers
and boxes, record protection filing cabinets, fire resistant data
storage cabinets, fire resistant vault doors and similar
space-saving storage equipment. These products are primarily used
by jewellers, corporate houses, banks, financial institutions and
government establishments. KSL was incorporated on October 13, 2009
by a group of entrepreneurs who are involved in the distribution of
physical security equipment of reputed global majors in the Middle
East, since 2004. The firm has setup a warehouse at Oragadam,
Chennai, for storing the inventory. KSL has an associate concern
KUBS Impex Private Limited, established in 2010, which is engaged
in trading of office products such as shredders, laminating and
binding machines.
MOTIL DEVI: CARE Moves B Rating to Not Cooperating Category
-----------------------------------------------------------
CARE Ratings has migrated the rating on bank facilities of Motil
Devi Organic Food Industries Private Limited (MDOFI) to Issuer Not
Cooperating category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 6.39 CARE B; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from MDOFI to monitor the rating
vide email communications/letters dated June 5, 2019, June 7, 2019,
July 24, 2019 and numerous phone calls. However, despite CARE's
repeated requests, the company has not provided the requisite
information for monitoring the rating. In line with the extant SEBI
guidelines, CARE has reviewed the rating on the basis of the
publicly available information which however, in CARE's opinion is
not sufficient to arrive at a fair rating. The rating on Motil Devi
Organic Food Industries Private Limited's bank facilities will now
be denoted as CARE B; Stable; ISSUER NOT COOPERATING. Further
banker could not be contacted.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
The rating take into account company's small scale of operation
with short track record, susceptibility of margins to fluctuation
in raw material prices, intensely competitive nature of the
industry with presence of many unorganized players, working capital
intensive nature of operation and weak financial risk profile
marked by moderately low profit margins, leveraged capital
structure and weak liquidity position. The rating, however, derives
strength from its experienced promoters and satisfactory demand of
the manufactured products.
Detailed description of the key rating drivers
Key Rating Weaknesses:
Small scale of operation with short track record
MDOFI is a small player in ice-cream manufacturing business with
revenue and PAT of INR8.41 crore and INR0.21 crore, respectively,
in FY18. Furthermore, the total capital employed was also modest at
INR14.53 crore as on March 31, 2018. The small scale restricts the
financial flexibility of the company in times of stress.
Furthermore, the commercial operation of the company has been
started from April 2014, thus having only over five years of
operational track record.
Susceptibility of margins to fluctuation in raw material prices
Raw material constituted around 70% of the total cost of sales for
the last two years (FY17-FY18). The company is in dairy industry
and susceptible to fluctuations in raw material prices. Milk supply
and its prices are exposed to several external risks like
government policies, cattle diseases, yield etc. Any fluctuation in
prices of milk will have a direct impact on the profitability
margins of the company.
Intensely competitive nature of the industry with presence of many
unorganised players
Dairy products like ice cream manufacturing industry is highly
fragmented and dominated by few large players having nationwide
presence. The competition is intense due to the presence of large
number of regional and local milk and dairy product suppliers.
Around 80% of the domestic dairy industry consists of unorganized
players, fragmented in various regions. MDOFI faces intense
competition from bigger private players and co-operative societies
with well established brands as well as unorganized sectors
comprising of local vendors.
Working capital intensive nature of operation
The operation of the company is working capital intensive. The
dairy industry is characterized by the short supply of milk during
peak of summers. The company primarily procures the raw material
during the winter season when the milk is available in abundance
and at low price which leads to build up of finished goods which
intern increases the inventory period as on last accounting date
which further leads to high operating cycle.
Weak financial risk profile marked by moderately low profit
margins, leveraged capital structure and weak liquidity position
Financial risk profile of the company has been low over the years.
Though the PBILDT margin has been satisfactory and hovering around
19.49% during FY18, PAT margin was low and is hovering around 2.54%
during FY18. The capital structure of the company is leveraged
marked by high overall gearing ratio at 3.11x as on March 31, 2018.
However Interest coverage ratio was comfortable at 2.44x during
FY18. Current ratio remained moderate at 1.61x as on March 31,
2018.
Key Rating Strengths:
Experienced promoters
MDOFI is currently managed by Mr. Deepak Wadhvani, Director, having
about two decades of experience in similar line of business.
Satisfactory demand of the manufactured products
With growing population and increasing purchasing power and growing
propensity to spend for the average consumer along with change in
lifestyle and food habits, demand for milk and milk products is
growing steadily primarily in the urban and semi-urban areas.
Liquidity
The liquidity position of the company remained moderate as current
ratio and quick ratio remained at 1.61x and 1.09x respectively as
on March 31, 2018. The cash and bank balance amounting to INR0.04
crore remained outstanding as on March 31, 2018. The Gross cash
accrual was INR0.94 crore in FY18.
Motil Devi Organic Food Industries Pvt Ltd (MDOFI), incorporated in
December 2012 by one Mr. Deepak Wadhvani of Raipur, is engaged in
the business of manufacturing of ice cream. The company started its
commercial operation since April 2014 with an installed capacity of
15,00,000 litres per annum. The company market its products under
the brand name of "Mental" in and around Raipur. Mr Deepak
Wadhvani, Director, looks after the day to day operations of the
company with adequate support from other director and a team of
experienced personnel.
PETRO & AGROWAYS: Ind-Ra Migrates 'BB' Rating to Non-Cooperating
----------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Petro & Agroways'
(PAW) Long-Term Issuer Rating to the non-cooperating category. The
issuer did not participate in the rating exercise despite
continuous requests and follow-ups by the agency. Therefore,
investors and other users are advised to take appropriate caution
while using the rating. The rating will now appear as 'IND BB
(ISSUER NOT COOPERATING)' on the agency's website.
The instrument-wise rating actions are:
-- INR35 mil. Fund-based working capital limits migrated to non-
cooperating category with IND BB (ISSUER NOT COOPERATING) /
IND A4+ (ISSUER NOT COOPERATING) rating; and
-- INR150 mil. Proposed overdraft limit (dropline) migrated to
non-cooperating category with Provisional IND BB (ISSUER NOT
COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
September 26, 2018. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
Established in 1976, PAW has a dealership of Hindustan Petroleum
Corporation Limited ('IND AAA'/Stable). Its fuel station is located
at Kharar on Chandigarh-Ludhiana-Ropar highway.
PKP FEED: Ind-Ra Affirms 'D' Long Term Issuer Rating
----------------------------------------------------
India Ratings and Research (Ind-Ra) has affirmed PKP Feed Mills
Private Limited's Long-Term Issuer Rating at 'IND D (ISSUER NOT
COOPERATING)'. The issuer did not participate in the rating
exercise despite continuous requests and follow-ups by the agency.
Thus, the ratings are on the basis of the best available
information. Therefore, investors and other users are advised to
take appropriate caution while using these ratings.
The instrument-wise rating actions are:
-- INR57 mil. Fund-based facilities (long-/short-term) affirmed
with IND D (ISSUER NOT COOPERATING) rating; and
-- INR112.9 mil. Term loan (long-term) affirmed with IND D
(ISSUER NOT COOPERATING) rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
February 11, 2015. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
KEY RATING DRIVERS
The affirmation reflects PKP's delays in debt servicing, the
details of which are not available.
RATING SENSITIVITIES
Positive: Timely debt servicing for at least three consecutive
months could result in a rating upgrade.
COMPANY PROFILE
PKP Feed Mills, founded by PK Pounraj in 2011, is based in
Dharmapuri. The company is involved in the production of feeds and
the sale of eggs.
PROGRESSIVE PACKAGING: Ind-Ra Affirms 'BB-' LT Issuer Rating
------------------------------------------------------------
India Ratings and Research (Ind-Ra) has affirmed and withdrawn
Progressive Packaging's (PP) Long-Term Issuer Rating of 'IND BB-'
with a Stable Outlook.
The instrument-wise rating actions are:
-- The 'IND BB-' rating on the INR25 mil. Fund-based limits
affirmed & withdrawn; and
-- The 'IND BB-' rating on the INR65.99 mil. Term loan due on
March 2024 affirmed & withdrawn.
Affirmed at 'IND BB-'/Stable before being withdrawn
Ind-Ra is no longer required to maintain the ratings, as the agency
has received a no-objection certificate from the lender. This is
consistent with the Securities and Exchange Board of India's
circular dated March 31, 2017, for credit rating agencies.
KEY RATING DRIVERS
The affirmations reflect PP continued small scale of operations,
despite growth in revenue to INR135.73 million in FY19 (FY18:
INR79.5 million), due to an increase in the numbers of orders
received. FY19 financials are provisional nature.
The firm's return on capital employed was 5.53% in FY19 (FY18:
11.97%) and margins were modest at 11.60% in FY19 (FY18: 20.02%).
Despite the increase in revenue, the margins declined due to rise
in raw material and other expenses.
However, the ratings remain constrained by PP's weak credit metrics
as indicated by interest coverage (EBITDA/gross interest) of 1.03x
in FY19 (FY18: 1.84x) and net leverage (net debt/EBITDA) of 6.67x
(7.06x). The deterioration in the interest coverage was due to a
decline in absolute EBITDA, while the net leverage improved due to
deterioration decrease in net debt to INR104.97 million in FY19
(FY18: INR112.43 million).
The ratings are also constrained by the firm's stretched liquidity
position. It had liquid cash and cash equivalents of INR15.80
million at FYE19 (FYE18: INR0.55 million) against total debt of
INR120.77 million (INR112.98 million). PP's average use of the
fund-based facility was 93.21% for the 12 months ended July 2019.
Cash flow from operation further declined to negative at INR17.18
million in FY19 (FY18: negative INR8.35 million) owing to changes
in working capital.
However, the ratings are supported by PP's partners' experience of
16 years in manufacturing corrugated boxes, leading to established
relationships with reputed customers such as Prataap Snacks
Limited, Nafees Bakery India Pvt Ltd, Super Hygiene Products Pvt.
Ltd. and Akash Global Foods Pvt. Ltd.
COMPANY PROFILE
Incorporated on November 1, 2015, PP manufactures corrugated boxes
at its 100% automated 800 metric tons/month facility. Anil Chordia
and Suman Chordia are the partners.
RAMALINGESHWARA COTTON: CARE Cuts Rating on INR5.10cr Loan to B+
----------------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Ramalingeshwara Cotton Industries (RCI), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 5.10 CARE B+ Issuer not cooperating
Facilities Revised from CARE BB-; Stable
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated November 28, 2018, placed
the rating of RCI under the 'Issuer non-cooperating' category as
Ramalingeshwara Cotton Industries had failed to provide the
information for monitoring the rating. Ramalingeshwara Cotton
Industries continues to be non-cooperative despite repeated
requests for submission of information through e-mails, phone calls
and email dated July 18, 2019, July 22, 2019, July 23, 2019, July
26, 2019 and August 13, 2019. In line with the extant SEBI
guidelines, CARE has reviewed the rating on the basis of the best
available information which however, in CARE's opinion is not
sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
At the time of last rating in November 23, 2018, the following were
the rating strengths and weakness:
Key Rating Weakness
Limited track record of operations coupled with relatively small
scale of operations
RCI was established in the year 2013. Hence, the firm has limited
track record of operations. Furthermore, scale of operation of the
firm has also remained relatively small with total income of
INR44.17 crore and networth of INR3.81 crore as on March 31, 2017
(C.A Certified Provisional). The scale of operations and networth
of the firm remained small as compared to other industry peers.
Thin profitability margins
The PBILDT margin of the firm decreased from 3.22% in FY16 to 2.38%
in FY17 (C.A. Certified Provisional) due to increase in raw
material cost. However, the PAT margin of the firm increased from
0.54% in FY16 to 0.56% in FY17 (C.A. Certified Provisional) due to
decrease in interest cost albeit decline in PBILDT.
Highly fragmented industry and seasonal nature of business
resulting in dependence on working capital borrowings
The cotton ginning industry is highly fragmented in nature with
several organized and unorganized players. Prices of raw cotton are
highly volatile in nature and depend upon the factors like area
under cultivation, crop yield, international demandsupply scenario,
export quota decided by the government and inventory carry forward
of the previous year. Spinning operators procure raw materials in
bulk quantities to avail discount from suppliers to mitigate the
seasonality associated with availability of cotton resulting in
higher inventory holding period. Further, the profitability margins
of the firm are susceptible to fluctuation in raw material prices.
Constitution of the entity as a Partnership firm with inherent risk
of withdrawal of capital and limited access to funding
Constitution as a partnership firm has the inherent risk of
possibility of withdrawal of the partner's capital at the time of
personal contingency which can adversely affect its capital
structure. Furthermore, partnership firms have restricted access to
external borrowings as credit worthiness of the partners would be
key factors affecting credit decision for the lenders.
Key Rating Strengths
Experience of the partner for a decade in cotton industry
RCI is promoted by Mr T Jagadeeswar and their friends and
relatives. Mr T Jagadeeswar has a decade of experience in cotton
industry. Prior to RCI, he was one of the partner in Venkat Sai
Industries (engaged in cotton ginning business). Due to long term
presence in the market, the partners have established relations
with the customer and supplier.
Growth in total operating income during review period
The total operating income of the firm increased from INR34.51
crore in FY16 to INR44.17 crore in FY17 (C.A. Certified
Provisional) representing growth of 13.13% due to the fact that
initially the firm was selling its product to CCI (Cotton
Corporation of India), however, the firm started selling its
products to local traders from FY16 onwards resulting in increase
in number of customers year-on-year.
Moderate Capital Structure and debt coverage indicators
The debt equity and overall gearing ratio of the firm improved from
0.64x and 1.40x respectively, as on March 31, 2016 to 0.34x and
1.30x respectively as on March 31, 2017 (C.A. Certified
Provisional) due to repayment of term loan installments coupled
with increase in tangible networth. The PBILDT interest coverage
ratio marginally improved from 2.28x in FY16 to 2.50x in FY17 (C.A.
Certified Provisional) due to decrease in interest cost on account
of repayment of term loan installments. However, the total debt/GCA
marginally deteriorated from 6.50x in FY16 to 7.54x in FY17 (C.A.
Certified Provisional) due to increase in debt levels on account of
higher outstanding balance of working capital facilities as on
account closing date.
Comfortable operating cycle
The operating cycle of the firm remained comfortable at 31 days in
FY17 (C.A. certified Provisional) due to moderate average
collection period and average inventory holding period. The firm
extends credit period of around 30-40 days to its customers while
it makes payment to the raw material suppliers (farmers) within a
week and sometimes by way of upfront cash. However, the firm also
avails credit period of 15-25 days based on the long standing
relationship with some of the farmers. RCI receives the payment
from its customers within 30-40 days. The firm holds the inventory
of around 30 days which includes raw cotton, inventory of raw
cotton under process and finished inventory of cotton bales and
cotton seeds to meet customer requirements.
Liquidity Analysis
The current ratio is above unity and stood at 1.33x as on
March 31, 2017 (CA Certified Prov.,) due to relatively high current
assets as compared to current liabilities on account of high sundry
debtors. The cash and Cash equivalent balance is INR0.01 crore as
on March 31, 2017 (CA Certified Prov.,).
Ramalingeshwara Cotton Industries (RCI) was established in the year
2013 and promoted by Mr T Jagadeeswar and their friends and
relatives. The firm is engaged in manufacturing of cotton bales and
cotton seeds. The firm procures the raw cotton from the farmers
located in and around Warangal. The firm sells its products i.e.
cotton bales and cotton seeds to various places like Maharashtra,
Pune, Tamil Nadu and Pondicherry.
REJEUVINE ENTERPRISES: Ind-Ra Migrates B Rating to Non-Cooperating
------------------------------------------------------------------
India Ratings and Research (Ind-Ra) has migrated Rejeuvine
Enterprises Private Limited's (REPL) Long-Term Issuer Rating to the
non-cooperating category. The issuer did not participate in the
rating exercise despite continuous requests and follow-ups by the
agency. Therefore, investors and other users are advised to take
appropriate caution while using these ratings. The rating will now
appear as 'IND B (ISSUER NOT COOPERATING)' on the agency's website.
The instrument-wise rating actions are:
-- INR30 mil. Fund-based working capital limit migrated to non-
cooperating category with IND B (ISSUER NOT COOPERATING) /
IND A4 (ISSUER NOT COOPERATING) rating; and
-- INR123.3 mil. Term loan due on June 2026 migrated to non-
cooperating category with IND B (ISSUER NOT COOPERATING)
rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
September 5, 2018. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
Established in November 2017, REPL is setting up a 50-bed
multi-specialty holistic health park in Chevella, Ranga Reddy,
Telangana.
SAMARTH AD PROTEX: Ind-Ra Affirms 'BB+' LT Issuer Rating
--------------------------------------------------------
India Ratings and Research (Ind-Ra) has affirmed Samarth Ad Protex
Pvt. Ltd (SAPPL) a Long-Term Issuer Rating at 'IND BB+'. The
Outlook is Stable.
The instrument-wise rating actions are:
-- INR397.4 mil. Long-term loans due on April 2023 affirmed with
IND BB+/Stable rating; and
-- INR147 mil. Fund-based limits affirmed with IND BB+/Stable
rating.
Analytical Approach: Ind-Ra has taken consolidated a view of SAPPL
and its group company, Samarth Fablon Private Limited ('IND BBB'/
Stable), together referred to as Samarth group, to arrive at the
rating on account of strong linkages between them by way of common
promoters, similar line of business and corporate guarantees for
loans.
KEY RATING DRIVERS
The ratings reflect the group's continued modest scale of
operations, despite revenue growth of INR3,842 million in FY19
(FY18: INR3,310 million). Revenue grew on the back of increased
orders from its customers. FY19 financials are provisional in
nature.
SAPPL's ratings are constrained by its limited operational track
record, given that its operations commenced in December 2017 and
FY19 was its first full year of operations.
The rating factor in the group's modest EBITDA margin of 7.3% in
FY19 (FY18: 7.6%). Margin declined in FY19 as SAPPL moved from job
work to manufacturing activities, which led to an increase in the
manufacturing costs of the company as during job work the raw
materials were provided by the customers. Ind-Ra expects the margin
to contract further due to the increase in SAPPLs operating and
employee expenses as it scales up its manufacturing operations.
Return on capital employed (RoCE) stood at 9.0% (7.7%).
Liquidity indicator – Stretched: The ratings are further
constrained by the group's stretched liquidity position, as
indicated by the negative cash flow from operations (CFO) over
FY17-FY18. The CFO turned positive in FY19 to INR181 million (FY18:
negative INR20 million; FY17: negative INR161 million), due to
satisfactory operating EBITDA and positive change in working
capital. The CFO, however, is expected to turn negative in FY20
owing to higher working capital requirements as the group plans to
scale up its operations. The group had a cash balance of INR135
million as of FYE19.
On a standalone level too, SAPPL, has a stretched liquidity
position, as indicated by its 98.7% average maximum fund
utilization over the 12 months ended June 2019. CFO turned positive
to INR42 million in FY19 (FY18: negative INR44 million) on the
generation of satisfactory absolute EBITDA.
The ratings, however, are supported by the Samarth group's moderate
credit metrics. Gross interest coverage (operating EBITDAR/gross
interest expense) improved to 2.5x in FY19 (FY18: 2.2x) and net
leverage (total adjusted net debt/ operating EBITDAR) to 3.5x
(4.5x) owing to improvement in operating EBITDA to INR279 million
(INR253 million) due to the overall increase in the revenue of the
group.
On a standalone level, SAPPL's FY19 EBITDA margin was modest at
20.4% (FY18: 45%) with a RoCE of 7.8% (-2.2%). In FY18, SAPPL
achieved revenue of INR32 million and in its first full year of
operations, FY19, the company achieved revenue of INR641 million.
The credit metrics of SAPPL improved in FY19 with gross interest
coverage of 2.5x (FY18: 1.1x) and net leverage at 3.5x (32.8x).
The ratings are also supported by the promoter's close to a decade
of experience in the manufacturing of cement bags.
RATING SENSITIVITIES
Positive: Increased consolidated revenue and profitability, leading
to an improvement in the credit metrics and liquidity position or
strengthening of the linkages with Samarth Fablon Private Limited
can be positive for the ratings.
Negative: Any further deterioration in the liquidity profile or
weakening of linkages with Samarth Fablon Private Limited would
lead to a negative rating action.
COMPANY PROFILE
SAPPL manufactures block bottom bags/polypropylene laminated bags
in Purulia district, West Bengal. The company has a production
capacity of 8,000 metric tons per annum. Mr. Bishnu Kumar Agarwal
is the key promoter.
SANGANI INFRASTRUCTURE: Ind-Ra Moves BB Rating to Non-Cooperating
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India Ratings and Research (Ind-Ra) has migrated Sangani
Infrastructure India Pvt. Ltd.'s Long-Term Issuer Rating to the
non-cooperating category. The issuer did not participate in the
rating exercise despite continuous requests and follow-ups by the
agency. Therefore, investors and other users are advised to take
appropriate caution while using these ratings. The rating will now
appear as 'IND BB (ISSUER NOT COOPERATING)' on the agency's
website.
The instrument-wise rating actions are:
-- INR100 mil. Fund-based working capital limit migrated to non-
cooperating category with IND BB (ISSUER NOT COOPERATING)
rating;
-- INR250 mil. Non-fund-based working capital limit migrated to
non-cooperating category with IND A4+ (ISSUER NOT
COOPERATING) rating; and
-- INR203.8 mil. Long-term loan due on April 2020 migrated to
non-cooperating category with IND BB (ISSUER NOT COOPERATING)
rating.
Note: ISSUER NOT COOPERATING: The ratings were last reviewed on
September 18, 2018. Ind-Ra is unable to provide an update, as the
agency does not have adequate information to review the ratings.
COMPANY PROFILE
Sangani Infrastructure India was incorporated in 2007 in Ahmedabad
to undertake the development of residential and commercial projects
in and around Gujarat.
SHIRPUR GOLD: CARE Lowers Rating on INR37.50cr Loan to 'D'
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CARE Ratings revised the ratings on certain bank facilities of
Shirpur Gold Refinery Limited (SGRL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 37.50 CARE D Revised from CARE BB+;
Facilities Stable
Short-term Bank 328.00 CARE D Revised from CARE A4+
Facilities
Detailed Rationale & Key Rating Drivers
The revision in the ratings assigned to the bank facilities of SGRL
is on account of delay/default in debt servicing.
Detailed description of the key rating drivers
Key Rating Weaknesses
On-going delay/default in debt servicing
As a part of CARE's due diligence process, CARE had interacted with
SGRL's bankers wherein verbal feedback was received from the
bankers stating invocation of bank guarantee in mid-July 2019 which
has not been settled, and delay in servicing of interest on cash
credit account for July 2019. As per the management, SGRL maintains
fixed deposit amounting to INR10.95 crore.
Update on performance in Q1FY20
SGRL has reported decline in total income to the extent of 39.54%
on account of lower trading activity. Further increase in finance
cost has led to decline in net profitability.
Shirpur Gold Refinery Limited (SGRL) is a part of Essel Group since
December 2008, post takeover of assets from ARCIL auction. The
company is engaged in gold refining with an installed capacity to
refine 217 MT per annum of gold. Its refinery is located at
Shirpur, Dhule district, Maharashtra. The company is also engaged
in bullion trading, manufacturing and sale of gold coins, gold bars
and gold jewelry both in the domestic and international markets.
The company's products namely Gold Bars and Gold Jewelry are well
established in the market and are sold under the brand name 'Zee
Gold'.
As on March 31, 2019, SGRL has one wholly owned subsidiaries namely
Zee Gold DMCC (ZGD), Dubai and two step down foreign subsidiaries
namely Precious Metals Mining and Refining Limited (PMMRL), Papua
New Guinea and Metalli Exploration and Mining, Mali. Shirpur Gold
Company Private Limited (SGM), Singapore ceased to exist with
effect from March 07, 2019 and loss (Rs.1.96 crore); being
investment value in such subsidiary has been written off.
SHREE KRISHNA: CARE Moves B Rating to Not Cooperating Category
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CARE Ratings has migrated the rating on bank facilities of Shree
Krishna Cold Storage Private Limited (SKCSPL) to Issuer Not
Cooperating category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 10.00 CARE B; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE has been seeking information from SKCSPL to monitor the rating
vide e-mail communications/letters dated June 5, 2019, June 7,
2019, June 11, 2019 and numerous phone calls. However, despite
CARE's repeated requests, the company has not provided the
requisite information for monitoring the rating. In line with the
extant SEBI guidelines, CARE has reviewed the rating on the basis
of the publicly available information which however, in CARE's
opinion is not sufficient to arrive at a fair rating. The rating on
Shree Krishna Cold Storage Private Limited's bank facilities will
now be denoted as 'CARE B; Stable; ISSUER NOT COOPERATING'. Further
banker could not be contacted.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
The rating take into account company's small size of operations
with profitability margins, Regulated nature of business,
seasonality of business with susceptibility to vagaries of nature,
risk of delinquency in loans extended to farmers, working capital
intensive nature of business, Competition from other local players
and leveraged capital structure and moderate debt coverage
indicators. Moreover, the rating continues to derive strengths by
experienced promoter and long track record of operations and
Proximity to potatoes growing region.
Detailed description of the key rating drivers
Key Rating Weaknesses:
Small size of operations with profitability margins
SKCSPL is a relatively small player in the trading and cold storage
business having total operating income and PAT of INR3.19 crore and
0.09 crore, respectively, in FY18. The total capital employed was
also low at INR9.89 crore as on March 31, 2018. Small scale of
operations with low net worth base limits the credit risk profile
of the company in an adverse scenario. Furthermore, the
profitability margins of the company also remained low marked by
PBILDT margin of 9.36% (5.30% in FY16) and PAT margin of 2.82%
(1.40% in FY17) in FY18.
Regulated nature of business
In West Bengal, the basic rental rate for cold storage operations
is regulated by the state government through West Bengal State
Marketing Board. The rent of these cold storages is decided by
taking into account political considerations, not economic
viability. Due to severe government intervention, the cold storage
service providers cannot enhance rental charge commensurate with
increased power tariff and labour charges.
Seasonality of business with susceptibility to vagaries of nature
SKCSPL's operation is seasonal in nature as potato is a winter
season crop with its harvesting period commencing in February. The
loading of potatoes in cold storages begins by the end of February
and lasts till March. Additionally, with potatoes having a
preservable life of around eight months in the cold storage,
farmers liquidate their stock from the cold storage by end of
season i.e., generally in the month of November. The unit remains
non-operational during the period from December to January.
Furthermore, lower agricultural output may have an adverse impact
on the rental collections as the cold storage units collect rent on
the basis of quantity stored and the production of potato is highly
dependent on vagaries of nature.
Risk of delinquency in loans extended to farmers
Against the pledge of cold storage receipts, SKCSPL provides
interest bearing advances to the farmers & traders. Before the
closure of the season in November, the farmers & traders are
required to clear their outstanding dues with the interest. In view
of this, there exists a risk of delinquency in loans extended, in
case of downward correction in potato or other stored goods prices,
as all such goods are agro commodities.
Working capital intensive nature of business
SKCSPL is into trading and cold storage services for potatoes,
accordingly its operation is working capital intensive in nature.
For its trading segment, the company procures potatoes mainly in
harvesting season when prices remain low; store it in its cold
storage and sells out the same when prices raises. Accordingly, the
average inventory period remained on the higher side during last
three years.
Competition from other local players
In spite of being capital intensive, the entry barrier for new cold
storage is low, backed by capital subsidy schemes of the
government. As a result, the potato storage business in the region
has become competitive, forcing cold storage owners to lure farmers
by providing them interest bearing advances against stored potatoes
which augments the business risk profile of the companies involved
in the trade.
Leveraged capital structure and moderate debt coverage indicators
The capital structure of the company remained leveraged marked by
overall gearing ratios of 3.32x as on March 31, 2018. Moreover,
Interest coverage ratio remained satisfactory at 4.28x in FY18 on
account of decrease in interest expenses.
Key Rating Strengths:
Experienced promoter and long track record of operations
SKCSPL is into trading and cold storage services for potatoes since
1995 and thus has long track record of operations Mr. Ashok Kumar
Bala is associated with the company since its inception and has
around three decades of experience whereas Mr. Arindam Bala has
more than five years of experience in the same line of business.
Both the promoters look after overall management of the company.
Proximity to potatoes growing region
SKCPL's cold storage facility is located at Medinipore, West Bengal
which is one of the major potato growing regions of the state. The
favorable location of the storage unit, in close proximity to the
leading potato growing areas provides it with a wide catchment and
making it suitable for the farmers in terms of transportation and
connectivity.
Liquidity
The liquidity position of the company remained moderately
moderately weak as current ratio remained at 1.14, while quick
ratio remained below unity at 0.42x, respectively as on March 31,
2018. The cash and bank balance amounting to INR0.82 crore remained
outstanding as on March 31, 2018. The Gross cash accrual was INR0.
0.19 crore in FY18.
Shree Krishna Cold Storage Private Limited (SKCSPL), incorporated
in the year 1995, is a Kolkata (West Bengal) based company,
promoted by Mr. Arindam Bala and Mr. Ashok Kumar Bala. It is
engaged in trading of potatoes and cold storage services for
potatoes. The company has its owned cold storage facility with a
storage capacity of 173,600 quintals at Paschim Mednipur, West
Bengal. Mr. Ashok Kumar Bala has around three decades of experience
whereas Mr. Arindam Bala has more than five years of experience in
cold storage business. Both the promoters look after overall
management of the company.
SHRIKRISHNA AVDHOOT: CARE Lowers Rating on INR4.75cr Loan to D
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CARE Ratings revised the ratings on certain bank facilities of
Shrikrishna Avdhoot Agro Private Limited (SAPL), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 4.75 CARE D Revised from CARE B+;
Facilities Stable
Detailed Rationale & Key Rating Drivers
The revision in the ratings assigned to the bank facilities of SAPL
takes into account ongoing delays in servicing of debt obligations.
The ability of the company to regularize its payments is the key
rating sensitivity.
Detailed description of the key rating drivers
Key Rating Weakness
Delays in repayment of interest and principal for the term loan
availed: There are on-going delays in the servicing of interest and
principal on the term loan availed by the company, the same was
mainly on account of stretched liquidity position. The financial
risk profile of the company was mainly affected by the deficit
level of rainfall in the Latur region on Maharashtra.
SAPL is a Latur (Maharashtra) based, Private Limited Company and
was incorporated in year 2012. However, the company commenced its
commercial operation as on September 2016. SAPL is in the business
of cultivation of Button Mushrooms. SAPL procures raw materials
i.e. wheat straw, natural rye berries, agricultural grade gypsum,
coconut coir and mushroom seeds from Pune based dealers. The
company sells its button mushrooms to Mumbai, Hyderabad, Pune,
Nagpur based dealers.
SOLAPUR TOLLWAYS: Ind-Ra Cuts Rating on INR5,884BB Loan to 'D'
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India Ratings and Research (Ind-Ra) has taken the following rating
action on Solapur Tollways Private Limited's (STPL) bank
facilities:
-- INR5,884.2 bil. Senior project term loan due on March 31, 2030
downgraded; off Rating Watch Negative (RWN) with IND D
rating.
KEY RATING DRIVERS
The downgrade and RWN resolution reflect delays in interest
servicing for the months of July 2019 and August 2019 due to the
absence of equity injections and non-setting off of interest
payments against future drawdowns. The interest overshot the
original estimates during construction, and the project has been
encountering cost and time overruns.
RATING SENSITIVITIES
Positive: Timely debt servicing for at least three consecutive
months could result in a positive rating action.
COMPANY PROFILE
STPL is an SPV, promoted by Bharat Road Network Limited. It was
incorporated to implement a lane expansion project under a 25-year
concession from NHAI. The project road is a 100km stretch from
Solapur to Maharashtra-Karnataka border and is part of the National
Highway 9. The project cost is estimated at INR8,826.2 million,
which is being funded by a term loan of INR5,884.2 million and
sponsor equity of INR2,942.1 million.
SYNDICATE BANK: S&P Affirms 'BB+' ICR, Alters Outlook to Positive
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S&P Global Ratings said that it had revised its outlook on the
'BB+' long-term issuer credit ratings on Syndicate Bank to positive
from stable. At the same time, S&P revised its outlook on the
'BBB-' long-term issuer credit ratings on Indian Bank to negative
from stable.
S&P said, "We affirmed our ratings on Syndicate Bank and Indian
Bank, as well as our 'BB+' long-term issuer credit ratings on Union
Bank of India. The outlook on Union Bank of India remains stable.
We also affirmed the short-term issuer credit ratings and the
long-term issue ratings on the senior unsecured debt of these
banks.
"Our rating actions follow the Indian government's announcement to
merge 10 state-owned banks into four and infuse capital into the
acquiring banks. The government's rationale for the mergers,
additional capital infusion, and tweaks to public-sector board
powers are credit positive at a system level, in our view. However
the impact varies depending on the current ratings of the
individual banks and the size and financial performance of the
amalgamated entities. The ability of the banks to successfully
merge their information technology systems, human resources,
corporate culture, and rationalize branch network and realign
nonperforming loans (NPLs) will also be key credit factors. We
believe the merger process will take up the bulk of management's
bandwidth over the next 12-18 months, which could affect interim
growth and profitability."
On Aug. 30, 2019, the Indian government announced it will
consolidate 10 state-owned banks into four in a bid to boost credit
in the economy and create economies of scale to improve global
competitiveness. The following banks will merge:
-- Union Bank of India (BB+/Stable/B) to absorb Andhra Bank and
Corporation Bank;
-- Syndicate Bank (BB+/Positive/B) to be absorbed by Canara Bank;
-- Indian Bank (BBB-/Negative/A-3) to absorb Allahabad Bank; and
-- Punjab National Bank (PNB) to absorb Oriental Bank of Commerce
(OBC) and United Bank.
In addition, the government has allocated Indian rupee (INR) 552.5
billion to 10 public-sector banks including the ones intended to
absorb other banks as part of the merger---Union Bank of India
(INR117 billion), Indian Bank (INR25 billion), Canara Bank (INR65
billion), and Punjab National Bank (INR160 billion). S&P believes
the banks will use part of this capital to clean up merged balance
sheets.
S&P said, "We believe the proposed mergers are consistent with the
government's objective of having fewer but larger and stronger
public sector banks. Following the consolidation, India will have
12 public sector banks, instead of 18 currently (and 27 in 2017).
This spate of mergers follows the merger of Bank of Baroda with
Vijaya Bank and Dena Bank in 2018 and the merger of State Bank of
India (SBI) with its associates and Bhartiya Mahila Bank in 2017.
The combination of PNB with United Bank and OBC will be the
second-largest lender after SBI. Union Bank's and Indian Bank's
balance sheet size will almost double post the merger.
"The mergers are subject to board approvals. We expect board
approvals to be forthcoming given the government has already
undertaken consultation and maintains majority control in these
banks.
"We continue to factor a very high likelihood of support for
government-owned banks in India. We believe that the government
treats the banks as one family and has not shown any material
differentiation among these banks when it provides policy guidance,
conducts performance reviews, or infuses capital. We believe that
this support framework will remain unchanged. We continue to
believe that the government of India would provide timely and
sufficient extraordinary support in the event of these banks'
financial distress. This assessment is driven by their very strong
link with the government and their very important role to the
government.
The proposed consolidation and capital infusion could help resolve
the immediate balance sheet problems of public sector banks.
However, unless these banks implement substantial reforms to
improve risk management, the need for capital will recur, in our
view.
SYNDICATE BANK
S&P said, "The 'BB+' rating on Syndicate Bank reflects our
expectation of very high likelihood of government support. The
bank's funding and liquidity profile is in line with the industry
average. Syndicate Bank's small market share, and stressed asset
quality, capitalization, and earnings constrain the rating.
"We believe that the merger with Canara Bank could enhance the
combined bank's business franchise and market position in the next
18-24 months. The combined bank will be among the five largest
banks in India compared with Syndicate Bank's current ranking of
14th in terms of asset base. In addition, as the bank reaps
synergies from the merger and recovery of its stressed assets, we
expect profitability to improve gradually. This in our view can
enhance its business profile, but we expect it to improve only
gradually post merger.
"Moreover, we do not expect any major downside to Syndicate Bank's
financial profile. We expect the asset quality for the combined
entity to be similar if not better than Syndicate Bank's current
performance. We expect that the merger related capital will boost
the capital adequacy of these banks and help them clean their
balance sheets and show moderate growth."
Outlook
S&P said, "The positive outlook on Syndicate Bank reflects our view
that there is a one-third probability that post merger the combined
entity's business profile could benefit from its enhanced franchise
and size, and improvement in profitability in the next 18-24
months, without any material deterioration in the combined entity's
financial profile.
"We could raise the ratings in the next 18-24 months if we believe
that the combined entity's business profile has improved post
merger such that it is able to reap the benefits of branch
rationalization and enhanced size, leading to improvement in
profitability.
"We could revise the outlook to stable if, in our view, the
combined entity's business profile does not improve to a level that
is commensurate with that of other large players in the industry,
or if the improvement is accompanied by deterioration in the
company's financial profile. The deterioration in financial profile
may occur if the combined entity's asset quality declines sharply
or if its capital position weakens."
INDIAN BANK
The 'BBB-' rating on Indian Bank reflects its stronger-than-average
funding profile and better capitalization compared with the
majority of its Indian peers. This is balanced by Indian Bank's
small market share and stressed asset quality.
S&P said, "We expect Indian Bank's capital, earnings, and asset
quality to suffer following the merger with a much weaker Allahabad
Bank. As of June 30, 2019, Allahabad Bank's reported NPL ratio was
17.4% in comparison to Indian Bank's 7.3%, while common equity
tier-1 ratio was 9.7% against Indian Bank's 11.4%. Allahabad Bank's
profitability is worse, marked by losses over the past four years.
We believe the major portion of the capital infusion may be
utilized to make provisions for Allahabad Bank's weak loans. While
the merger improves Indian Bank's market share to about 3.5% from
1.8% currently, it remains small in the Indian banking industry."
Outlook
S&P said, "The negative outlook on Indian Bank reflects our view
that there is a one-in-three chance of a downgrade by one notch
over the next 18-24 months. We view the merger with the weaker
Allahabad bank will potentially undermine Indian Bank's asset
quality and capitalization owing to the former's high NPLs and
lower common equity tier-1 ratio.
"We will lower the rating by a notch if Indian Bank's risk-adjusted
capital (RAC) ratio falls below 7% on a sustained basis in addition
to the anticipated deterioration in asset quality post merger.
"We would revise the outlook to stable if the bank can sustain the
RAC ratio above 7%, possibly due to capital raising and improvement
in earnings."
UNION BANK OF INDIA
S&P said, "The 'BB+' rating on Union Bank reflects our expectation
of a very high likelihood of government support. Union Bank's weak
asset quality, capitalization, and earnings constrain the rating.
"We believe the ratings on Union Bank will remain largely unchanged
over the next 12 months. Our ratings on Union Bank have tolerance
for potential deterioration in stand-alone creditworthiness on
absorbing relatively weaker banks. The financial performance of
Union Bank, Andhra Bank, and Corporation Bank has been constrained
by substantial problem loans, high provisioning costs, and reported
losses over the past few years. We believe the merger significantly
improves the size and franchise of Union Bank, effectively doubling
its market share to about 6%. However, the bank will take more than
two years to leverage on the scale and generate superior
profitability. We believe earnings will remain a drag over our
outlook horizon due to integration and provisioning costs, making
Union Bank dependent on capital infusion from the government for
growth. We expect the asset quality of the combined entity to be
similar or somewhat weaker than Union Bank's."
Outlook
S&P said, "The stable outlook on Union Bank reflects our view that
the bank's financial profile post merger will be similar to the
current profile. We believe the benefits from the increase in size
and franchise are balanced by the weak profitability and drag on
earnings from provisioning costs over the next 12 months.
"We would lower the rating on Union Bank by a notch if the bank's
RAC ratio falls below 5% on a sustained basis, along with a
deterioration in its asset quality or funding profile. We believe
the bank's capitalization could deteriorate due to high
provisioning costs. In our view, the merged bank's ability to
mobilize low-cost deposits will be key to maintaining its funding
profile, which could weaken on merging with banks with a lower
current and savings account deposit ratio.
"We would consider an upgrade by a notch if Union Bank's
profitability improves and is comparable to that of large regional
players. However, we view this as unlikely over the next 12-18
months."
ULTRA HOME: CARE Migrates D Rating to Not Cooperating Category
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CARE Ratings has migrated the rating on bank facilities of Ultra
Home Construction Private Limited (UHC) to Issuer Not Cooperating
category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 204.56 CARE D; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated March 13, 2018, placed the
ratings of UHC under the 'issuer non-cooperating' category as UHC
had failed to provide information for monitoring of the ratings.
UHC continues to be non-cooperative despite requests for submission
of information through email, dated August 8, 2019 and a mail the
day after. In line with the extant SEBI guidelines, CARE has
reviewed the rating on the basis of the best available information
which however, in CARE's opinion is not sufficient to arrive at a
fair rating. The rating of UHC bank facilities will now be denoted
as CARE D; ISSUER NOT COOPERATING.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above ratings.
Detailed description of the key rating drivers
At the time of last rating on March 13, 2018 the ratings had taken
into account the continuation in delays in servicing of debt by the
company.
M/s Ultra Home Construction Private Limited (UHC) was incorporated
in April 2004 as a private limited company to carry out real estate
development in both residential and commercial segment. UHC founded
by Mr. Anil Kumar Sharma is the flagship company of Amrapali group;
the group has more than 16 years of experience with completed
projects (both residential and commercial) spread over 100 acres in
Delhi-NCR and Greater Noida market. UHC had undertaken a commercial
project Amrapali Tech-Park in April 2010. UHC had completed the
said project in FY14 at a total cost of INR722 cr. In 2019, the
Promoters of the company are sent behind the bars in an alleged
case of defrauding homebuyers.
UNITON INFRA: CARE Keeps B+ Rating in Not Cooperating Category
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CARE Ratings said the rating for the bank facilities of Uniton
Infra Private Limited (UIPL) continues to remain in the 'Issuer Not
Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 15.00 CARE B+; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated January 10, 2019, placed the
rating of UIPL under the 'Issuer non-cooperating' category as
(UIPL) had failed to provide information for monitoring of the
rating. UIPL continues to be non-cooperative despite repeated
requests for submission of information through e-mails, phone calls
and email dated July 18, 2019, July 22, 2019, July 23, 2019 and
July 30, 2019. In line with the extant SEBI guidelines, CARE has
reviewed the rating on the basis of the best available information
which however, in CARE's opinion is not sufficient to arrive at a
fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
The ratings assigned to the bank facilities of Uniton Infra Private
Limited (UIPL) are constrained by short track record and nascent
stage of operations, tender based nature of operations along with
project execution risk and stabilization of operations.
However, the rating also takes into account the small scale of
operations marked by total operating income (TOI) and satisfactory
profitability margins, leveraged capital structure and weak debt
coverage indicators and elongated operating cycle days in FY18
(Refers to the period April-March). The ratings are underpinned by
the experience of the promoters for more than two decades in
construction industry and stable outlook of Construction Industry.
Going forward, the company's ability to add new customers and
increase its scale of operations along with profit margins and
improve its capital structure and debt coverage indicators would be
the key rating sensitivities.
Key Rating Weakness
Short track record and nascent stage of operations
The company has short track of business operations. The company was
incorporated in the year 2017 and it expected to start commercial
operations from December 2018. The company has achieved a TOI of
INR9.80 crore in FY18 along with low tangible net worth of INR4.30
crore as on March 31, 2018.
Financial risk profile marked by leveraged capital structure and
weak debt coverage indicators
The capital structure of the company remained leveraged marked by
overall gearing ratio at 3.48 x as on March 31, 2018 due to high
debt levels on account of high utilization of working capital bank
borrowings. Also, the debt coverage indicators of the company
remained weak marked by total debt/GCA and PBILDT interest coverage
ratio at 27.66x & 3.45x in FY18 respectively on account of initial
year of operations.
Elongated operating cycle days
The Operating cycle of the company remained at 294 days as on March
31, 2018 due to high collection and inventory days as on closing
balance sheet date.
Tender based nature of operations
The revenues of the firm are dependent on the ability of the
promoters to bid successfully for the tenders and execute the same
effectively. However the promoter's long experience in the industry
for more than two decades mitigates the risk to an extent.
Nevertheless, there are numerous fragmented & unorganized players
operating in the segment which makes the civil construction space
highly competitive.
Key Rating Strengths
Experience of the promoters for more than two decades in
construction industry
UIPL is promoted by Mr. Mahesh Bigala (Managing Director) and Mrs.
Shalini Bigala (Director). The directors are well qualified wherein
Mr. Mahesh Bigala, aged 45, is a post graduate, having experience
of 20 years in construction business. The company is likely to get
benefited by its qualified and experienced promoters.
Small scale of operations marked by total operating income (TOI)
and profitability margins
UIPL has achieved a TOI of INR9.80 crore in FY18 i.e., its first
year of operations. Also, the profitability margins of UIPL
remained satisfactory marked by PBILDT and PAT margin at 10.47% &
5.51% in FY18.
Stable outlook of Construction Industry
The construction industry contributes around 8% to India's Gross
domestic product (GDP). Growth in infrastructure is critical for
the development of the economy and hence, the construction sector
assumes an important role. The Government of India has undertaken
several steps for boosting the infrastructure development and
revives the investment cycle. The same has gradually resulted in
increased order inflow and movement of passive orders in existing
order book. The focus of the government on infrastructure
development is expected to translate into huge business potential
for the construction industry in the long-run. In the short to
medium term (1-3 years), projects from transportation and urban
development sector are expected to dominate the overall business
for construction companies.
Liquidity analysis
The current ratio of the company is above unity at 1.39x as on
March 31, 2018 mainly on account of high current assets due to high
receivables outstanding as on March 31, 2018 as compared to current
liabilities.
Uniton Infra Private Limited (UIPL) was incorporated in the year
2017 with its registered office at Banjara Hills, Hyderabad. The
promoters of the company are Mr. Mahesh Bigala (Managing Director)
and Mrs. Shalini Bigala (Director). They have experience of more
than two decades in Construction Industry. The company is primarily
engaged in construction of buildings, apartments and other
infrastructure works. The company procures its work orders through
online tenders from Greater Hyderabad Municipal Corporation (GHMC),
Telangana. In November 2017, the firm entered in to Joint Venture
agreement with RKI Builders Private Limited for executing the
project of GHMC with sharing ratio of 51% to RKI Builders Pvt Ltd
and the remaining 49% to UIPL.
VESTA EQUIPMENT: CARE Keeps D Rating in Not Cooperating Category
----------------------------------------------------------------
CARE Ratings said the rating for the bank facilities of Vesta
Equipment Private Limited (VEPL) continues to remain in the 'Issuer
Not Cooperating' category.
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long-term Bank 3.45 CARE D; Stable; ISSUER NOT
Facilities COOPERATING; Based on best
Available information
Long/short term 8.50 CARE D; Stable; ISSUER NOT
Bank Facilities COOPERATING; Based on best
Available information
Detailed Rationale & Key Rating Drivers
CARE had, vide its press release dated July 19, 2018, placed the
rating(s) of VEPL under the 'issuer not cooperating' category as
VEPL had failed to provide information for monitoring of the rating
and had not paid the surveillance fees for the rating exercise as
agreed to in its Rating Agreement. VEPL continues to be
non-cooperative despite repeated requests for submission of
information through phone calls and e-mails dated July 18, 2019,
July 19, 2019, July 22, 2019, July 23, 2019 and July 24, 2019. In
line with the extant SEBI guidelines, CARE has reviewed the rating
on the basis of the best available information which however, in
CARE's opinion is not sufficient to arrive at a fair rating.
Users of this rating (including investors, lenders and the public
at large) are hence requested to exercise caution while using the
above rating.
Detailed description of the key rating drivers
At the time of last rating on July 19, 2018 the following were the
rating strengths and weaknesses:
Key Rating Weakness
Ongoing delays in debt servicing: Due to stretched liquidity
position, the company is unable to repay its debt obligations and
hence, the account gets into the Non-performing Asset (NPA)
category as confirmed by banker.
Key Rating Strengths
Experienced promoters
The company is being promoted by Mr. R. Balasubramanian and Mr. Sam
Alumkal Thampi of Bangalore, Karnataka. Mr. R. Balasubramanian
(aged 54 years), Managing Director, is an Engineer, having around
three decades of experience in manufacturing of industrial
machineries and was associated with various heavy equipment
manufacturing companies like Ingersoll-Rand (India) Ltd as a
strategic business unit head, Thermo King India Pvt Ltd as a
country head and also worked in Doosan Infracore's Construction
Equipment (India) as CEO. While Mr. Sam Alumkal Thampi (Director,
aged 44 years, Post Graduate), having more than two decades of
experience in sales and marketing with several companies (like
Voltas Ltd, Ingersoll-Rand (India) Ltd, Volvo India Pvt. Ltd. etc),
looks after the marketing aspect of the company. They are actively
supported by a team of experienced personnel.
Vesta Equipment Private Limited (VEPL) was incorporated in May,
2010 and is promoted by Mr. R. Balasubramanian and Mr. Sam Alumkal
Thampi of Bangalore, Karnataka. The company is engaged in
designing, development and manufacturing of diesel engine driven
portable screw air compressor in technical collaboration with M/s.
Sullair Corporation, USA. Currently the company manufactures three
kinds of air screw compressors which are utilized in water well
drilling, coal bed methane drilling, geothermal, underbalanced
drilling etc. The manufacturing unit of the company is situated at
Bangalore and having a capacity to produced 690 units of machines
per annum.
ZEE GOLD: CARE Lowers Rating on INR75cr LT Loan to 'C'
------------------------------------------------------
CARE Ratings revised the ratings on certain bank facilities of
Zee Gold DMCC (ZGD), as:
Amount
Facilities (INR crore) Ratings
---------- ----------- -------
Long term Bank 75.00 CARE C; Stable Revised from
Facilities CARE BB+ (CE); Stable
Detailed Rationale & Key Rating Drivers
The revision in the rating assigned to the bank facilities of
ZGD factors in the weakening of the credit profile of the guarantor
and parent company, namely Shirpur Gold Refinery Limited (SGRL;
rated CARE D). The ratings are further constrained by ZGD's weak
debt protection metrics and liquidity position, its low
profitability margins, high leverage, exposure to volatility in
gold prices, seasonality in demand for gold and highly regulated
industry structure.
The ratings continue to derive strength from its experienced
promoter group and management, and established position of SGRL in
gold refining business. Further acquisition of gold mines which
would result in captive sourcing of raw material at competitive
rates.
The ability of ZGD to strengthen its capital structure and improve
the profitability margins considering competitive market scenario
comprise of the key rating sensitivities.
Detailed description of the key rating drivers
Key Rating Weaknesses
Weakening of the credit profile of the parent company, i.e. SGRL
The credit profile of SGRL weakened on account of on-going delays.
Accordingly, the ratings assigned to the bank facilities of SGRL
were revised from CARE BB+; Stable/ CARE A4+ to CARE D/CARE D.
Working capital intensive nature of operations
ZGD is engaged in processing and trading of gold bars. ZGD procures
raw material (dore) from Latin American markets and sells in the
domestic markets under the brand name 'ZEE Gold'. On sourcing dore,
ZGD gets the gold refined from Dubai's gold refiners like Al
Ethihad Gold Refinery DMCC, Dubai. Post refining bars of 99.5%
purity, the same is sold to bullion banks like Standard Bank of
London, RAK Bank Dubai and other wholesale traders in Dubai. Since
the dealings are in AED/USD, hence no hedging is done. The
operations of the company is working capital intensive as dore
suppliers insist on advance payment or provide credit of up-to
fifteen days, whereas the company provides credit period of around
15-30 days to its customers. Thus the overall utilization stood
around 90-95% for 12 months period ending June 2019.
Low profitability margins
During the past three years, the operations of the company have
been growing with regards to increase in the trading activity.
During FY19, lower income is reflected on account of change in
accounting policy whereby the company recognized net amount for
gold and silver sold (as against gross amount until FY18) as per
IFRS 15. Growth in trading activity is along with improvement in
the profitability margins as well which stood at 1.13% in FY19.
Despite the increase, the profitability margins continue to be very
low given the trading nature of business and are also susceptible
to fluctuation in the commodity prices.
High gearing level and weak debt protection metrics
The operations of the company being working capital intensive, the
reliance on external borrowings have increased. Increasing debt
levels and low net-worth base have resulted in high gearing levels
which stood at 3.16x as on March 31, 2019. Further the business
generates low cash accruals being trading nature, thus the debt
protection metrics stands weak with total debt to GCA at 12.04x and
moderate interest coverage ratio of 2.20x in FY19.
Weak liquidity profile
The company avails sanction limit of around USD 25.75 million
(approx. INR179.81 crore @INR69.83) which is currently utilized
around on an average 90-95% for period ending June 2019. In
addition the company has low cash & bank balance of INR7.09 crore
(AED 37,10,874). Thus the overall liquidity position of the company
stands weak.
Exposure to commodity price risks
The price of gold is largely governed by movements at major
precious metal exchanges of London, New York, Tokyo and others. The
local precious metal prices are an algorithm of these movements on
'spot' basis and Indian currency rates. Prices may fluctuate widely
for all products affecting demands in the market. This would have
direct impact on the low profitability margins of the company.
Susceptibility to changes in government regulations
Any unfavorable revision in the duty structure and regulations can
adversely affect ZGD's revenue and profitability. Imposition of GST
which hiked the tax rate of gold in India, had a direct impact to
the players in the industry. To diversify the reach and insulate
itself from the changing regulations, SGRL (part of Essel group)
formed ZGD.
Key Rating Strengths
Experienced management
ZGD is a part of Essel group, which has its presence in diversified
sectors such as television broadcasting, cable distribution,
direct-to-home satellite service and digital media amongst others.
The company is supported by professionals who have vast experience
in the gold business. Currently the operations are managed by chief
financial officer, Mr. Sharvan Kumar Shah.
Acquisition for gold mine in FY18
ZGD acquired 70% shareholding rights of MEAM for gold mines located
at Bamako, Mali during FY18. MEAM holds the exploration permit over
an area of 23.2 km located at Kangaba, Koulikoro region, Mali, and
has obtained Small Scale Mining License from Ministry of
Environment. The said acquisition would lead to captive sourcing of
raw materials at competitive rates. However, the subsidiary is yet
to commence operations and thus the impact of the acquisition
remains to be seen.
Liquidity: ZGD avails sanction limit of around USD 25.75 million
(approx. INR179.81 crore @Rs.69.83) which is currently utilized
around on an average 90-95% for period ending June 2019. In
addition the company has low cash & bank balance of INR7.09 crore
(AED 37,10,874). Thus the overall liquidity position of the company
stands weak.
Analytical approach: The rating assigned to the bank facilities of
ZGD were earlier based on the assessment of SGRL, as SGRL has
provided unconditional and irrevocable guarantee to the bank
facilities of ZGD. In view of the weakening of the credit profile
of the guarantor, wherein the guarantor is no longer in a position
to support ZGD, the analytical approach has been changed to
'standalone'.
ZGD is a part of Essel group with 100% holding of Shirpur Gold
Refnery Limited. The company is engaged in processing and trading
of gold bars. ZGD procures raw material (dore) from Latin America
and sells in the domestic markets. ZGD has tied up with mining
companies from gold producing countries in Latin America,
Australia, Africa etc. in order to ensure proper and regular supply
of gold dore. Post procurement, refining is done through Dubai's
gold refiners like Al Etihad Gold Refinery DMCC, Dubai. After
getting the refined bars of 99.5% purity the same are sold to
bullion banks like Standard Bank of London, RAK Bank Dubai and
other wholesale traders in Dubai. ZGD acquired 70% stake in Metalli
Exploration and Mining (MEAM) in Mali, Bodoko. This company is yet
to commence operations.
=====================
N E W Z E A L A N D
=====================
WAGAMAMA: Owes More Than NZ$4.8MM to Creditors, Liquidator Says
---------------------------------------------------------------
Duncan Bridgeman at New Zealand Herald reports that restaurant
franchise Wagamama owes nearly NZ$5 million to creditors including
former staff left out of pocket after it shut up shop in July, a
liquidators' report shows.
The global franchise, which served Asian-inspired food, had
restaurants in Auckland and Wellington before the local company
that owns them went into liquidation and receivership.
According to NZ Herald, the first report from liquidators Steven
Khov and Thomas Rodewald put the failure down to an unsustainable
business model and several restaurants performing below
expectations.
Total debts owed across the four restaurants in Newmarket, New
Lynn, Sylvia Park and downtown Wellington and the parent
company--WNZ Ltd--amounted to NZ$4.83 million.
Assets at the time of liquidation include intercompany loans, some
fixtures and equipment and a shareholder current account.
However, it was too early to comment on any recoveries and the
likelihood of a distribution to creditors at this stage, the
report, as cited by NZ Herald, said. "The liquidators are also
investigating whether there are any other assets and/or potential
claims which may give rise to additional recoveries for the benefit
of creditors."
NZ Herald says discussions were also being held with receivers
Stephen Lawrence and Christopher McCullagh, who were appointed by
Simon and Bridget Tompkins as trustees of the Manning Trust and BMC
Trust on July 23.
The Tompkins are listed as 40 per cent shareholders of the parent
company, with Mark Keddel and Robert Bruce also holding 40 per cent
of the company's shares, NZ Herald discloses.
The Manning and BMC Trust has a claim in the liquidation for NZ$1
million but sits behind the ANZ Bank as first ranking secured
creditor (owed NZ$123,907) and beverage company Lion as the second
ranking secured creditor, notes the report. The Inland Revenue is
owed approximately NZ$917,039, the bulk of which relates to the
Wellington restaurant. Unsecured creditors including former staff
and suppliers are owed about NZ$3.3 million across the four
restaurants and parent company.
NZ Herald says the general manager of the Wellington restaurant,
Soraya Edwards, last month told RNZ she was owed at least NZ$6000,
and dozens of staff are owed more than NZ$50,000 combined.
According to NZ Herald, the liquidators said they are still
quantifying staff entitlements that remain unpaid.
When the chain closed its doors in July, a notice posted on
Wagamama's central website hinted it could return in the future, NZ
Herald notes.
"We are very sorry that our time in New Zealand has, for now, come
to an end. We'd like to raise our chopsticks and thank all our
loyal customers who have visited us at Wagamama New Zealand over
the years."
"We hope one day to be back on your shores."
NZ Herald notes that the liquidators are undertaking a review of
the financial affairs of the company while they await the
completion of the receivership.
The first receivership report is expected before September 30, NZ
Herald discloses.
=================
S I N G A P O R E
=================
CHINA SKY: Court Grants Further Extension to Judicial Management
----------------------------------------------------------------
Vivienne Tay at The Business Times reports that the Singapore High
Court has granted an extension to the judicial manager of China Sky
Chemical Fibre Company for a judicial management order to March 13,
2020, from Sept. 13 previously.
According to the report, the judicial manager, Yit Chee Wah of FTI
Consulting, had applied for an extension on Sept. 3, which was
granted on Thursday. He had previously applied for a separate
extension on Feb 21, which was granted on March 8.
Mr. Yit was appointed in September 2018 as judicial manager after
the company applied for judicial management in August 2018.
In January this year, the company said it was selling its
wholly-owned unit Deluxe Dragon International Limited, to the
company's chairman He Zhidong for SGD190,000, the report recalls.
Deluxe Dragon is an investment holding company and owns the
China-incorporated Qingdao Zhongda Chemical Fiber Company Limited.
BT relates that the judicial manager had deemed at the time that it
was in the best interests of China Sky's creditors to sell Deluxe
Dragon's shares to Mr. He as Qingdao Zhongda is debt-ridden and has
no operations which the judicial manager can continue with.
China Sky's shares are currently suspended. A trading halt was
called on Aug. 12, 2016, the report adds.
China Sky Chemical Fibre Co., Ltd., engages in the manufacture and
sale of chemical fibers.
=================
S R I L A N K A
=================
DFCC BANK: Fitch Affirms B LongTerm IDRs, Outlook Stable
--------------------------------------------------------
Fitch Ratings affirmed Sri Lanka-based DFCC Bank PLC's Long-Term
Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'B'
and National Long-Term Rating at 'AA-(lka)'. The Outlook is
Stable.
KEY RATING DRIVERS
IDRS, VIABILITY RATING, NATIONAL RATING AND SENIOR DEBT RATING
DFCC's IDRs are driven by its intrinsic strength. DFCC's Viability
Rating and National Long-Term Rating reflect DFCC's above-average
capitalisation, which compensates for the risks stemming from its
developing commercial bank franchise, deteriorating asset quality
and weak earnings.
DFCC's Fitch Core Capital ratio of 15.9% at end-June 2019 remains
one of the highest among its large peers. The ratio continues to be
affected by mark-to-market losses associated with its stake in
Commercial Bank of Ceylon PLC (AA(lka)/Stable), of which a part is
categorised as available-for-sale. Fitch expects DFCC's capital
buffers to converge with that of larger peers in the medium term,
as the bank's business model, via expansion in commercial banking,
becomes broadly similar to that of the large peers. DFCC could only
raise LKR2.8 billion in April 2019, well below its planned LKR7.6
billion, because some shareholders, including the state, which had
a 35% stake in DFCC at end-2018, did not subscribe to their rights
entitlements.
Fitch expects asset-quality pressure to continue to weigh on DFCC's
ratings, with incremental risks stemming from an increase in
commercial loans. Fitch believes the risk associated with its
project financing book has been somewhat managed by focusing on
corporate customers rather than SMEs. DFCC's regulatory
non-performing loan (NPL) ratio rose to 4.6% by end-June 2019, from
3.3% at end-2018 (end-2017: 2.8%), bumped up by the SME segment.
The bank's stressed NPL ratio (including rescheduled and
restructured loans) continues to be high.
Fitch expects DFCC's profitability to remain weak in the short to
medium term on account of slower loan growth, higher impairment
costs and a higher effective tax rate. DFCC's profitability has
been weakening in recent years, especially after its merger with
DFCC Vardhana Bank PLC in October 2015. The bank's earnings over
2018-1H19 were also weighed down by mark-to-market losses on the
remainder of its stake in Commercial Bank of Ceylon that is
classified as held-for-trading. DFCC has one of the weakest
earnings and profitability profiles among Fitch-rated large private
banks.
The Sri Lanka rupee-denominated senior debt of DFCC is rated at the
same level as its National Long-Term Rating as the debentures rank
equally with other senior unsecured obligations.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating of '5' and Support Rating Floor of 'No Floor'
reflect Fitch's assessment that state support may be possible but
timely sovereign support cannot be relied upon in light of the
sovereign's weakened financial ability. Furthermore, the bank's
franchise is small with market share of around 3% of system assets
against 8%-11% for the larger private banks.
SUBORDINATED DEBT
The Basel II- and Basel III-compliant Sri Lanka rupee-denominated
subordinated debt of DFCC is rated one notch below its National
Long-Term Rating to reflect the subordination to senior unsecured
creditors. The Basel III-compliant debentures include a
non-viability trigger upon the occurrence of a trigger event, as
determined by the Monetary Board of Sri Lanka.
RATING SENSITIVITIES
IDRS, VIABILITY RATING, NATIONAL RATING AND SENIOR DEBT RATING
An inability to sustain capital buffers at a level that is
commensurate with its risk profile could pressure the bank's IDRs,
Viability Rating and National Long-Term Rating. Fitch sees limited
upside for the bank's ratings due to its weak franchise.
The assigned senior and subordinated debt ratings are primarily
sensitive to changes in DFCC's National Long-Term Rating.
SUPPORT RATING AND SUPPORT RATING FLOOR
DFCC's Support Rating and Support Rating Floor are sensitive to the
sovereign's ability to provide support.
SUBORDINATED DEBT
The ratings on DFCC's subordinated debt will move in tandem with
the bank's National Long-Term Rating.
===========
T A I W A N
===========
UNITED MICROELECTRONICS: Egan-Jones Cuts Sr. Unsec. Ratings to BB
-----------------------------------------------------------------
Egan-Jones Ratings Company, on September 3, 2019, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by United Microelectronics Corporation PLC to BB from
BB+.
United Microelectronics Corporation is a Taiwanese company which is
based in Hsinchu, Taiwan. It was founded as Taiwan's first
semiconductor company in 1980 as a spin-off of the
government-sponsored Industrial Technology Research Institute.
=============
V I E T N A M
=============
VINGROUP JOINT: S&P Alters Outlook to Negative & Affirms 'B+' ICR
-----------------------------------------------------------------
On Sept. 12, 2019, S&P Global Ratings revised its outlook on
Vingroup Joint Stock Co. to negative from stable. S&P also affirmed
its 'B+' long-term issuer credit rating on the Vietnam-based
company.
S&P said, "We revised the outlook because we expect Vingroup's
leverage to stay elevated over the next 12 to 18 months. This is
due to the company's fast debt-funded expansion into new ventures,
especially automobiles, which require large upfront spending but
will likely have losses in the initial ramp-up phase.
"We expect Vingroup's total adjusted debt (including hybrid
instrument and operating lease adjustments) to surpass Vietnamese
dong (VND) 130 trillion by end-2019 and reach VND150
trillion-VND155 trillion by 2020, according to S&P Global Ratings
projections. Its leverage (ratio of debt to EBITDA) could therefore
stay elevated at 4.5x-5.0x over the next two years, compared with
5.0x in 2018 and 3.2x in 2017.
"The higher debt will support capital expenditure (capex), which is
driven by two major spending pushes: growth of existing businesses
and ramp-up of new ventures. We forecast Vingroup's annual capex
will be VND20 trillion-VND25 trillion higher than our previous
expectation over the next two years. Investments in the auto
business will account for 40%-45% of the growth in capex.
"In our opinion, Vingroup faces elevated risk of performance
volatility over the next two years. Despite the company's emphasis
on the manufacturing and technology segments, its profit and cash
flow are dependent on the profitable property segment. This exposes
Vingroup to property market cyclicality and adds volatility to
earnings. The company's financial position is also highly dependent
on timely expansion of existing business lines. We estimate
Vingroup needs to realize at least 45% revenue growth in its
existing businesses in 2020 to offset the increasing leverage. We
acknowledge that the bulk of the company's 2020 revenue from
property sales has been locked in backed by pre-sales.
"Vingroup's EBITDA margin is also likely to dilute over the next
two years. Losses in new ventures in the auto, smartphone, and
airlines businesses during the initial phase could dampen
profitability beyond our base case, given intense competition. In
addition, the company's rapid expansion in various existing
segments could constrain profitability due to initial start-up
costs and the time taken by new stores to ramp-up before margins
stabilize. We expect Vingroup's EBITDA margin to gradually decrease
to about 14% by 2020, compared with historical levels of 17%-20%. A
further margin deterioration by two percentage points could push
the debt-to-EBITDA ratio beyond our base case of 4.5x-5.0x.
"We believe Vingroup has the flexibility to adjust capex depending
on market performance because most of the spending for expansion is
discretionary. However, the company has a record of prioritizing
investments to capture market position and enhance competitiveness
amid a scaling up of Vietnam's middle-income population and
consumption.
"In our opinion, Vingroup has wide access to equity markets and can
attract high quality, long-term strategic institutional investors.
That's because the company is the largest in Vietnam by market
capitalization. This strength may alleviate some pressure on
Vingroup's leverage and help the company to optimize its capital
structure. The strategic cooperation with investors could also
support growth and expansion.
"We affirmed the rating because we believe Vingroup will maintain
its position as the largest property developer and shopping mall
operator in Vietnam. The company has 15%-20% market share in the
property development sector and 60% market shares in shopping mall
leasing in the cities of Hanoi and Ho Chi Minh. We expect Vingroup
to continue its sales momentum over the next two years, backed by a
well-established brand name and strong pipeline of project
launches.
"We believe Vingroup's listing of two profitable
subsidiaries--Vinhomes JSC and Vincom Retail--has a neutral impact
on the rating. The two subsidiaries contribute more than 80% of
consolidated EBITDA. Meanwhile, about 70% of consolidated reported
debt is at Vingroup and its unlisted subsidiaries (Group Company),
as of June 30, 2019. Nevertheless, we believe cash is reasonably
fungible within the group. Group Company could serve the liquidity
needs mainly by three ways: (1) dividends from Vinhomes and Vincom
Retail, (2) inter-company loans, and (3) project transfers."
For significant and long-term funding requirements, the group may
arrange an intercompany loan to another group company. The terms
are established on an arms' length basis and are approved by the
board of directors or the shareholders as per the company charter.
Vinhomes' intercompany loans represent about 5% of total assets.
S&P said, "We believe Vingroup can manage its increasing exposure
to U.S. dollar-denominated debt. As on June 30, 2019, unhedged debt
represented about 25% of consolidated adjusted debt (including
hybrid). The company has some natural hedge against foreign
currency owing to property sales to foreign retail buyers. In
addition, residential block sales to foreign institutional buyers
are denominated in U.S. dollar. We forecast EBITDA from these
segments over U.S. interest expense will be at least 1.2x over the
next 12 months.
"The negative outlook reflects a one-third chance that we may
downgrade Vingroup if the company's leverage and execution risk
increase related to its business expansion over the next 12 months.
These factors could potentially cause the company's ratio of debt
to EBITDA to stay above 5.0x for a prolonged period.
"We could lower the rating if Vingroup's debt-to-EBITDA ratio
remains above 5.0x on a sustained basis. This could happen if
Vingroup's debt-funded expansion is faster and more aggressive than
we anticipate, and the company's profit does not grow fast enough
to absorb the growing debt. Slow property sales or greater losses
than we expect at new ventures could lead to such deterioration.
"We could also lower the rating if Vingroup's liquidity
deteriorates substantially or its foreign currency mismatch
increases significantly.
"We could revise the outlook to stable if Vingroup lowers its
leverage, has stronger EBITDA growth compared to our base case, and
prudently manages debt expansion such that its debt-to-EBITDA ratio
improves to be sustainably below 5.0x. In the meantime, the company
should maintain EBITDA interest coverage above 2.5x."
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Asia Pacific is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Joy A. Agravante, Rousel Elaine T. Fernandez,
Julie Anne L. Toledo, Ivy B. Magdadaro and Peter A. Chapman,
Editors.
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