Credit rating agency ICRA on Monday downgraded Shapoorji Pallonji (SP) group’s ₹18500 crore fund and non-fund based long term rating assigned to bank facilities. SP group has high exposure to real-estate business. The rating agency has put the group on watch with developing implications, it said in a note.
BusinessLine had reported on Saturday that ICRA had kept its ratings affirmed at AA+ and A1+ to SP group, facilities despite the fact that its 18.37 per cent shareholding in Tata Sons has restrictions on sale.
SP group’s holding in Tata Sons has been assessed as one of the reasons for its strong rating.
But while changing its rating on Monday, the agency said that it was given to understand that SP’s financial flexibility remained strong despite restrictions on its shareholding.
“The ratings take into account the financial flexibility enjoyed by the SP Group driven by strong investment portfolio comprising of listed and unlisted equity investments as well as large land and property holdings. The SP group is the single-largest shareholder in Tata Sons, with an 18.37 per cent stake. ICRA is given to understand that the financial flexibility arising from the shareholding remains strong despite the ongoing litigations,” a note from the rating agency said.
Stake in Tata Sons
Spat between Cyrus Mistry and Ratan Tata and a legal battle that followed resulted in restrictions on SP group’s holding in Tata Sons. The Mistry family derives an estimated $16.7 billion of its fortune from the holding but it cannot sell stake without prior approval from the Tata Sons board.
Besides Mistry family’s holding in Tata Sons, ICRA had earlier said that it took into account strong inflow of orders in SP group company’s core construction business over the last two fiscals, resulting in a well-diversified order-book position which provides revenue visibility in the near- to medium-term.
Giving a rational for downgrading SP group on Monday, ICRA said it took into account muted sales and continued cost pressure, which has led to weak performance of the group’s real estate portfolio and lower than anticipated progress on asset monetisation. This along with the funding support provided to group/subsidiary companies (primarily real estate SPVs) has resulted in an increase in SP company’s standalone borrowing levels, contrary to ICRA’s expectations of a reduction in the same.
Also, the debt availed by various SP group real estate entities for which SP has extended debt service reserve account guarantee is exposed to refinancing risks given that the projects would take time to generate commensurate cash flows.