Crisil downgrades Essar Oil, Birla Global

MUMBAI, APR 29: Crisil, the leading credit rating agency, has downgraded the rating of non-convertible debenture issue and Rs 2 billion n...

MUMBAI, APR 29: Crisil, the leading credit rating agency, has downgraded the rating of non-convertible debenture issue and Rs 2 billion non-convertible debenture issue of Essar Oil Ltd EOL to C8217; from BB8217;. It has also downgraded the debt programme of Birla Global Finance Ltd.

The new rating of Essar Oil indicates 8220;substantial risk8221; for investors. The C8217; rating is only one grade above the default category. In a statement, Crisil said the revision in rating is due to a significant portion of the residual funding for the refinery project under implementation by EOL, remains untied. Besides, the disbursement in respect of the facilities already sanctioned by the lenders would be subject to successful mobilisation of the funds committed by the company like the additional equity Rs 210 crore and the foreign currency convertible bonds Rs 585 crore

In the event of EOL failing to bring in these funds, it is expected to face difficulties in debt servicing of the outstanding non-convertible debentures in atimely manner. Further, the risk profile of the company has been affected due to escalation in project cost, funding characterised by a higher proportion of debt, depressed refinery margins in the Asia-Pacific region, expected surplus situation for some of the refinery margins in the Asia Pacific region, expected surplus situation for some of the refinery products and uncertainties relating to implementation of tariff protection recommended by Nirmal Singh Committee, it said.

Meanwhile, the NBFC sector witnessed another rating downgrade on Thursday with Crisil pulling down the ratings accorded to the debt programme of Birla Global Finance ltd BGFL within days of the finance company announcing a net profit of Rs 0.11 crore for the quarter ended March 31, 1999.

The rating agency blamed declining business volumes, deteriorating asset quality and profitability performance and increasing competition in BGFL8217;s car finance business for the downgrade. quot;Crisil has downgraded the ratings given to BGFL8217;s fixeddeposit programme by one notch to FA8217; from FAA-8216; and that assigned to its Rs 70 crore non-convertible debt NCD programme to A8217; from A8217;,quot; the agency release said.

However, the current ratings accorded to BGFL still indicate adequate safety primarily because of the finance company8217;s strong parentage, expected capital structure correction from the proposed restructuring and favourable resource raising capabilities, the Crisil release added.

Incidentally, in their unaudited results for the quarter ended March 31, 1999, which were released earlier this week, BGFL had reported a gross income of Rs 17.65 crore and a net profit of Rs 0.11 crore for this period. A press release issued by the NBFC in Mumbai on Monday stated that the company8217;s gross income for the two-quarters ending March 31, 1999 stood at Rs 38.89 crore, down from Rs 46.62 crore in the same period of last year.

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quot;The decline in gross profit this year was due to the adverse market conditions,quot; the company release said and added thatBirla Global has received FIPB approval for its tie-up with Sun Life Assurance Company of Canada for a wide range of financial services such as asset management, stock broking and retail distribution. quot;There will be an inflow of Rs 38 crore from Sun Life into BGFL as goodwill,quot; the BGFL press release said.

Incidentally, BGFL is a lease and hire purchase company engaged in equipment and vehicle financing, bills discounting and loans against shares. The total funds deployed by the company stood at Rs 469.35 crore as on September 30, 1998, the Crisil release said.

Meanwhile, Crisil has reaffirmed its FB8217; ratings accorded to the fixed deposit programme of another NBFC, Amrutanjan Finance Ltd AFL. However, this rating is in the speculative grade and indicates inadequate safety. NBFC sources added that both NBFCs have been registered with the Reserve Bank of India and have been permitted to accept and renew deposits.