India Ratings has downgraded ABG Shipyard to 'IND BBB' from 'IND A-' because of the delays in order execution and bond issue. The company, however, remains positive and said that it will raise Rs 688 crore over the next two months.
Apart from this, the agency has also downgraded ABG's Rs 200-crore non-convertible debenture programme to 'IND BBB'. India Ratings said, "The ratings are based on a consolidated view of ABG Shipyard and its subsidiaries. The downgrade reflects ABG Shipyard's continued strained liquidity position due to its delays in executing a novation agreement with a large client and an associate company."
In an emailed reply, Dhananjay Datar, group CFO and executive director, ABG Shipyard said: "Small delays are mostly on account of the financial arrangements at the client end. These delays are mutually agreed as all our clients are repeat customers and enjoy a carefree and cordial relationship. However, overall the company's liquidity position is normal."
Datar said, "With the current economic slowdown worldwide, ABG too is experiencing a temporary cash flow mismatch."
The company has total order book of Rs 18,000 crore and out of which the unexecuted order book is about Rs 9,500 crore, which would take care of the execution/revenues for the next 3 to 4 years. "Further, the company is now focusing on execution of offshore vessels out of the existing order book, which would entail the regular milestone payments to the company," Datar said.
India Ratings, too, noted this and said, "The company has traditionally manufactured small- to mid-size vessels for which the demand has been less cyclical compared with the demand for large-size vessels."
ABG Shipyard has two manufacturing facilities in Surat and Dahej. Its revenues for FY12 went up to Rs 2,472 crore as against Rs 2,133 crore in FY11. The EBITDA margins in the given period also improved marginally to 28.3% from 27.3%.
Despite the slowdown in the global shipping industry, ABG Shipyard has displayed revenue growth at a CAGR of 20.5% over FY09-FY12, while maintaining average EBITDA margin of 27.9%, the agency said.
A client had placed an order for two oil rigs worth Rs 1,155 crore but failed to take the delivery earlier this year.
"As the bond issuance has been delayed, the agency expects ABG Shipyard's liquidity profile to have weakened significantly, due to large work-in-progress inventory relating to the rigs," the agency said.
The agency has also put ABG on a Ratings Watch Negative list. This means that there is a potential of further delays in the placement of the bonds which may lead to delays in the sale of oil rigs to the associate company. "This could cause the company's working capital position to be strained in FY14 as well," India Ratings said.
Datar said, "We are actively working on the long-term funds raised and have received a positive feedback from investor as well. The financial market, especially the European markets are generally inactive in the month of December. However, we had the initial round of investor meetings and the proposed transaction is well received by the investors. We expect to update the investors with the transaction documents by mid of January 2013 and expect to conclude by end of February 2013."
The company is looking to raise up to Rs 688 crore from this bond issue.
"Considering the weakness observed globally and domestically in this industry, any future delays by other clients in taking deliveries could further impact the financial profile of the company," it concluded.
