ICRA downgrades SAIL rating

MUMBAI, SEPT 15: ICRA has downgraded the rating assigned to the long-term debt programmes of Steel Authority of India Ltd SAIL to LA' ...

MUMBAI, SEPT 15: ICRA has downgraded the rating assigned to the long-term debt programmes of Steel Authority of India Ltd SAIL to LA8217; from LAA-8216;. The company8217;s fixed deposit FD programme has also been downgraded to MA from MAA. The revised ratings indicate adequate safety. ICRA has also downgraded SAIL8217;s short-term debt programme to A1 from A1.

The downgrade takes into account the significant decline in profitability due to continued pressure on realisations. quot;Sluggish domestic demand coupled with additional offerings from new entrants has kept realisations weak,quot; ICRA said in a release. SAIL has not been able to pass on the accumulated input cost increases of the previous two years and the current year.

According to ICRA, domestic sales volume is also unlikely to show marked improvement over the last year. International steel prices have remained soft due to overcapacity in the Asian region on account of recessionary trends in the southeast Asian region and the Japanese economy. The low internalaccruals have led to additional borrowings for the large ongoing modernisation programme, which has also witnessed cost and time overruns. This has further increased the gearing of the company.

ICRA has said that these additional liabilities, along with the likely support to be extended to IISCO, especially when the VISL venture has come to SAIL more in the nature of default than any kind of strategic planning, introduce a greater element of uncertainty regarding SAIL8217;s future debt-servicing capacity.

ICRA has also downgraded the MA rating assigned to the fixed deposit FD and floating rate debenture programmes of Indbank Merchant Banking Services IMBSL to MA-. The rating assigned to the inter-corporate deposit ICD programme has been revised from A1 to A2. An A2 rating has been assigned to the commercial paper programme of the company.

IMBSL has changed its business focus to fee-based business to comply with SEBI8217;s regulation prohibiting a company from carrying on both fund and fee-basedbusinesses. IMBSL will now solely concentrate on merchant banking activities in future. ICRA expects the company8217;s profitability to suffer due to a high share of low earning assets, unviable business levels and provisioning on account of delinquent assets.

The rating agency has retained the triple-A and A1 rating assigned to the medium- and short-term instruments of SBI Capital Markets Ltd, indicating the highest safety. The rating takes into account the leadership position enjoyed by SBI Caps in merchant banking activities, comprising issue management, underwriting and corporate advisory services. ICRA expects SBI Caps to maintain its leadership position on account of its brand image and the strength that it derives from its strong parentage.