CRISIL downgrades JSPL to ‘Default’ category

Rating agency CRISIL downgraded its ratings on the bank facilities and debt programmes of Jindal Steel and Power (JSPL) to   'CRISIL D/CRISIL D'  from  'CRISIL BB+/CRISIL A4+'; the ratings have been extracted from 'Watch with Negative Implications'.

Default category means a non-investment grade financial instrument i.e. junk status. CRISIL has downgraded all the financial instruments of different maturities to default.

According to the rating agency, downgrade reflects delays by JSPL in payment of interest on its term loans. The delays were due to weakened liquidity. Liquidity deteriorated significantly as the steep fall in steel realisations coincided with high debt repayment obligations. Pressure on liquidity intensified further due to delays in materialisation of asset monetisation plans and refinancing of debt.

JSPL's steel business remains vulnerable to volatility in demand and in prices of metal, while its power business is susceptible to demand and price volatility in the merchant market and also to the lack of raw material integration said the report. Further it goes on to state that the overall group is also exposed to risks related to regulatory changes in the mining sector. However, it has a healthy market position in the steel industry, value-added product profile, and proximity to raw material sources. Successful debt refinancing and asset monetisation will be critical for the group and will assist in tiding over the current liquidity constraint. 

Off late the debt laden group has tried to hive of its non-core assets in order to reduce its debt levels.

The ratings downgrade for JSPL is expected to put many banks and financial institutions on the back foot. The recent downgrade is likely to put many fund houses under a spot as they would see redemption pressure increasing in those funds. In the last 15 months, JSPL's ratings have been downgraded by multiple notches, from 'AA-' in late 2014 to 'D'.

On February 17, soon after JSPL's debt ratings were cut to junk status, it was widely reported that two large fund houses Franklin Templeton MF and ICICI Prudential MF which have substantial exposure to the group to the tune of Rs 2,600 crore are at risk of facing investors ire.

In another development, a group of foreign lenders of JSPL are exploring the move of recalling loans adding up to USD 550 million, as the company is failing to repay its loan due to its deteriorating financial condition.

Reacting to the news, shares of JSPL were trading down by 2 per cent in early trade on NSE.