Fitch downgrades Rajshree Sugars

Fitch today downgraded the rating of Rajshree Sugars & Chemicals' (RSCL) Rs 60-crore commercial paper programme from 'F1(ind)' to 'F2(ind)' due to potential losses on account of its derivatives exposure and poor financial performance in the third quarter.

The F2 rating indicates a satisfactory capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, the margin of safety is lower than the previous rating.

The downgrade follows Rajshree's below par operational performance during the first nine months of of 2007-08. The Coimbatore-based company is also locked in a legal dispute with Axis Bank over a derivatives deal, which may render its networth negative. "Fitch notes the lack of proper monitoring and risk management procedures with regards to managing foreign currency risk and exposures," the rating agency said in a statement.

It added that Rajshree faced potential substantial losses on account of some of its foreign exchange derivatives exposures due to adverse market movements.

The company has gone to court against its bankers on account of these transactions and the matter is now sub-judice. "A ruling against the company will result in substantial fresh losses, and put further pressure on RSCL's (Rajshree) credit metrics beyond the current rating level," the release added.

Fitch said Rajshree's revenues and EBITDA (earnings before interest, taxes, depreciation and amortisation) during the first nine months of 2007-08 were Rs 253 crore and Rs 130 crore, respectively. The EBITDA margin fell to 5.1 per cent compared to 15 per cent in the previous financial year. Losses during the period were estiamted at Rs 1.6 crore.

Rajshree is a medium-sized sugar company in south India with business interests in distillery and cogeneration. During 2006-07, it reported revenues of Rs 400 crore , EBITDA of Rs 59 crore and a net income of Rs 22.6 crore.