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India Ratings has downgraded ABG Shipyard Limited’s long-term issuer rating to 'IND BBB' from ‘IND A-’ and maintained it on Rating Watch Negative (RWN). The agency has also downgraded the company’s Rs 2 billion non-convertible debenture programme to Long-Term ‘IND BBB’ from ‘IND A-’ and maintained it on RWN.
The ratings are based on a consolidated view of ABG Shipyard and its subsidiaries. The downgrade reflects ABG Shipyard’s continued strained liquidity position due to its delays in executing a novation agreement with a large client and an associate company. The rating action is based largely on publicly available information as India Ratings was unable to receive the management’s perspective on the current liquidity situation.
After the client failed to offtake two oil rigs worth $ 21,485 million from ABG Shipyard earlier this year, the latter decided to sell the rigs to its associate company, which was to fund the purchase of rigs through an issue of bonds. As the bond issuance has been delayed, the agency expects ABG Shipyard’s liquidity profile to have weakened significantly, due to large work-in-progress inventory relating to the rigs.
In FY12, the company had availed large additional debt to support its higher working capital requirements, which led to a substantial weakening of its credit metrics.
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