ABG Shipyard’s Rating Downgraded

India Ratings & Research (Ind-Ra) has downgraded ABG Shipyard Limited’s (ABG Shipyard) Long-Term Issuer Rating to ‘IND BB-’ from ‘IND BBB’ and resolved the Rating Watch Negative (RWN).

The Outlook is Negative. The agency has also downgraded the rating on the company’s INR2bn non-convertible debenture programme to Long-Term ‘IND BB-’ from ‘IND BBB’.

Key Rating Drivers

The rating action follows persistence of the company’s weak liquidity position in FY13 and FY14 till date. The tight liquidity was triggered by delays in receiving milestone linked payments from clients, particularly for two under construction oil rigs worth USD440 million. Although the client has recently resumed payments on the same contract, the delays experienced in the past year and a half led to a significant increase in short-term borrowings. With fund-based limits being almost fully utilised in FY13, the company has been facing challenges in funding the work in progress for other contracts.

The agency believes the prevailing weak conditions in the global shipping industry also have a negative impact on ABG Shipyard’s credit profile to the extent that it would find it difficult to transfer any cancelled order to an alternate buyer at suitable terms, thereby impacting its profitability and liquidity.

In Ind-Ra’s opinion, ABG Shipyard faces significant refinancing risk on its short-term repayment obligations, considering the weak operating environment of the shipping industry in India as well as globally.

Rating Sensitivities

Negative: Persistence of current strained liquidity position (due to an inability to raise equity or refinance significant proportion of debt or otherwise) can lead to a rating downgrade.

Positive: A significant and sustained improvement in the liquidity position can lead to the Outlook being revised to Stable.

[mappress]

Press Release, June 12, 2013