Icra downgrades SPCPL's rating to BBB+ on delay in securing working capital

Rating agency ICRA has downgraded ratings for Shapoorji Pallonji and Company Private Ltd’s (SPCPL) term loans from 'A-' to 'BBB+' taking into account the impact of delay in securing the requisite working capital limits.

The delay has impacted the engineering, procurement, and construction (EPC) operations in FY23, resulting in modest profitability and muted debt coverage metrics compared with earlier estimates.

The company’s line of credit was put to restricted use as a part of the One Time Restructuring (OTR) plan in March 2022, which constrained order execution in FY23. Timely sanction of adequate working capital limits remains critical to support the growth in core operations in the medium term", the rating agency said in a statement.

The rating for the company's short-term Fund-based facilities has also been revised 'A2+' to 'A2'.

Icra said the ratings have been placed on 'Watch with Developing Implications' following the company’s business restructuring plan.

It was given to understand that the guiding principle is to have SPCPL operating only as the holdco-cum-operating company for the construction business. The real estate as well as other business verticals will be carved out under separate companies, which will also be owned directly / indirectly by promoters, ICRA added.

The restructuring process is likely to release capital in these segments, as well as likely to limit incremental funding requirements in these businesses from SPCPL. This is expected to support SPCPL’s credit quality owing to a reduction in consolidated debt, and corporate and DSRA guarantees.

Icra will continue to monitor developments in this regard and evaluate the impact once there is adequate clarity on the same.

The ratings positively factor in SPCPL’s status as the flagship company of the Shapoorji Pallonji Group (SP Group), with a well-established presence in the construction, real estate and infrastructure businesses.

The ratings consider the investment portfolio of the SP Group comprising listed and unlisted equity investments, along with large land and property holdings.

The SP Group is the single-largest minority shareholder in Tata Sons Private Limited, the holding company of the Tata Group, with an 18.37 per cent stake.