Crisil downgrades Reliance Infra's long-term debt

Crisil has downgraded its rating on Reliance Infrastructure’s long-term debt on concerns of business restructuring and the resultant restriction in cash flow. The Indian subsidiary of credit rating firm Standard and Poor’s, Crisil, has lowered the rating to AA+/Negative from AAA, while the company’s rating on the short-term debt reaffirmed at ‘P1+’.

Two long-term bond programmes of Anil Ambani- promoted Reliance Infrastructure (R-Infra)---a Rs 1,000 crore and a Rs 300 crore--- have been downgraded by the rating agency even as the Rs 175 crore short-term debt programme will remain stable with ‘P1+’. However, all the three programmes have been removed from negative watch.

The downgrading would make it more expensive for the company when it borrows money, said  industry experts. However, a company executive said, “We have significant amount of liquidity with us and currently there is no borrowing plans. Hence the rating will not have any impact on the company.”

This restructuring will restrict access to cash flows from the distribution and generation businesses, said Crisil report. Crisil will take a view on the rating on the subsidiary after it is set up. The outlook could be revised to ‘stable’ if the liquidity position is further enhanced significantly over the next 9 to 12 months.

“R-Infra continues to enjoy top rating even in today’s difficult environment when other companies’ ratings have been downgraded. The current rating reflects the change in business mix of R-Infra with growth in engineering, procurement and construction (EPC) business and other projects,” said the executive.

R-Infra has over Rs 10,000 crore of cash and cash equivalent on its books, while the debt is Rs 5,000 crore, resulting in a net cash of Rs 5,000 crore. The EPC division has an order book of Rs 21,500 crore, Lalit Jalan, chief executive of R-Infra earlier told Business Standard in an interview. 

“The ratings continue to reflect R-Infra’s strong order book in the EPC business, its track record of timely execution of projects, and its significant liquidity, with cash and bank balances of Rs 5400 crore as on March 31, 2009,” said Crisil report and it added that the funding of the large infrastructure projects of the company would not diminish the liquidity from its current levels.

The ratings had been placed on watch after Reliance Infrastructure (R-Infra) announced its plans to de-merge all its businesses into wholly-owned subsidiaries. Under the scheme of de-merger, which is approved by R-Infra’s board, the power generation and distribution businesses will be transferred to wholly-owned subsidiaries, while the EPC business will remain with the company.

Fitch Ratings had put R-Infra in watch list in June 2008 and downgraded its ratings two notches to “AA+” from “AAA” in July and to “AA” in December. The second downgrade reflected increased uncertainty over the Rs 7,840 crore warrant conversion by promoters of R-Infra. As the share price is still below the conversion price, the warrants are not likely to be converted into shares, said analysts.