February 15, 2016
Mumbai
Jindal Steel and Power Limited
 
Ratings downgraded to 'CRISIL BB+/CRISIL A4+' ; Continues on 'Watch Negative'  
 
Total Bank Loan Facilities Rated Rs.326380 Million
Long Term Rating CRISIL BB+ (Downgraded from 'CRISIL BBB+'; Continues on 'Rating Watch with Negative Implications')
Short Term Rating CRISIL A4+ (Downgraded from 'CRISIL A3+'; Continues on 'Rating Watch with Negative Implications')
(Refer to Annexure 1 for Facility-wise details)
 
Rs.32.12 Billion Non Convertible Debentures CRISIL BB+ (Downgraded from 'CRISIL BBB+' ; Continues on 'Rating Watch with Negative Implications')
Rs.41.5 Billion Commercial Paper CRISIL A4+ (Downgraded from 'CRISIL A3+' ; Continues on 'Rating Watch with Negative Implications')

CRISIL has downgraded its ratings on the bank facilities and debt programmes of Jindal Steel and Power Ltd (JSPL; part of the JSPL group) to 'CRISIL BB+/CRISIL A4+' from 'CRISIL BBB+/CRISIL A3+'; the ratings continue to be on 'Watch with Negative Implications'.
 
The downgrade reflects CRISIL's belief that the JSPL group's liquidity will deteriorate significantly in the near term as stake sale in rolling mill and the receipt of proceeds from settlement in Bolivia may take longer. CRISIL had earlier expected these to be completed before March 31, 2016; delays would adversely impact group's debt-servicing ability in the near term and increase group's reliance on timely refinancing of debt taken for Angul (Odisha) steel plant. Any delay in the said refinancing beyond CRISIL's expectations of March 2016 could lead to severe pressure on cash flow and will hence remain a key monitorable.
 
Recent introduction of minimum import price for steel products by the Government of India will not provide immediate respite to the group's liquidity. However, its impact on profitability over the medium term will remain contingent upon extent of improvement in domestic realisations. Performance of the power business will remain subdued due to absence of power purchase agreements and low demand in the merchant market.
 
The ratings continue to be on 'Watch with Negative Implications' as CRISIL believes due to a weak operating and financial performance, there will be a breach in covenants for part of the non-convertible debentures issues of JSPL, which can lead to a sharp deterioration in group's liquidity and credit quality. Based on the discussion with the debenture trustees, CRISIL understands that the debenture holders have not exercised their option to ask for accelerated repayment. However, if the debenture holders choose to exercise the option for accelerated repayment, JSPL's liquidity position could come under further pressure. CRISIL will remove the ratings from watch and take a final rating action once it has more clarity on this issue.
 
The ratings reflect the JSPL group's healthy market position in the steel industry, value-added and superior product profile, and proximity to raw material sources. These strengths are partially offset by the group's weak financial risk profile because of large debt and deteriorating debt protection metrics. Furthermore, the steel business remains vulnerable to volatility in demand and prices of metal, while the power business is susceptible to demand and price volatility in the merchant market and lack of raw material integration. The group is also exposed to risks related to regulatory challenges in the mining sector.
 
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of JSPL and its subsidiaries. This is because all the entities, collectively referred to as the JSPL group, have operational and financial linkages.

About the Group

The JSPL group, a part of the USD18-billion diversified OP Jindal group, is one of India's key steel producers, and has a sizeable presence in power generation and mining. The group operates the world's largest coal-based sponge-iron plant that has installed capacity of 6.75 million tonne per annum (mtpa) of steel: 3.25 mtpa at Raigarh, Chhattisgarh; 1.50 mtpa in Angul; and 2.00 mtpa in Oman.

Jindal Power Ltd (JPL), a subsidiary of JSPL, set up India's first mega power project of 1000 megawatts (MW) in the private sector, and currently has a total commissioned power capacity of 2800 MW, with another 600 MW being synchronised. Through its fully owned subsidiary, Jindal Steel & Power (Mauritius) Ltd (JSPML), JSPL acquired Shadeed Iron & Steel Company (Shadeed) in Oman, which has a 1.5-mtpa gas-based hot-briquetted iron plant; the plant is forward-integrated to manufacture 2.0 mtpa of finished products. The group's international operations include interests in mining assets in resource-rich locations such as Australia, Indonesia, Mozambique, and South Africa.

The JSPL group undertook a large capital expenditure programme of around Rs.476 billion in 2011 for implementing a 1.5-mtpa greenfield integrated steel plant at Angul (under JSPL); 2400-MW power plants in two phases (2x600 MW each; in Tamnar, Chhattisgarh, under JPL); a 2-mtpa billet-cum-rounds capacity in Oman (under Shadeed); and for modernisation at Raigarh (under JSPL). The facilities of JSPL and JSPML were commissioned in 2014-15, along with 1800-MW of the 2400-MW power plants under JPL.
 
On a consolidated basis, the JSPL group reported a net loss of Rs.12.8 billion (after accounting for exceptional expense of Rs.18.55 billion paid as an additional levy on the order of the Supreme Court of India) on an operating income of Rs.194.0 billion for 2014-15, against a profit after tax (PAT) of Rs.18.9 billion on an operating income of Rs.192.86 billion for 2013-14. The group reported a net loss of Rs.16.35 billion (after accounting for provision for impairment loss of fixed assets of Rs.2.27 billion in its overseas subsidiary in Australia and foreign exchange variation loss of Rs.1.22 billion due to sharp depreciation of Australian dollar) on an operating income of Rs.135.38 billion for the nine months ended December 31, 2015. Against this, it reported a net loss of Rs.7.58 billion (after accounting for exceptional expense of Rs.18.55 billion paid as an additional levy on the order of the Supreme Court of India) on an operating income of Rs.150.28 billion for the nine months through December 2014.

Annexure 1 - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating
Cash Credit 36000 CRISIL BB+/Watch Negative Cash Credit 36000 CRISIL BBB+/Watch Negative
Letter of Credit 38000 CRISIL A4+/Watch Negative Letter of Credit 38000 CRISIL A3+/Watch Negative
Proposed Cash Credit Limit 5500 CRISIL BB+/Watch Negative Proposed Cash Credit Limit 5500 CRISIL BBB+/Watch Negative
Proposed Letter of Credit 33492.4 CRISIL A4+/Watch Negative Proposed Letter of Credit 33492.4 CRISIL A3+/Watch Negative
Proposed Long Term Bank Loan Facility 43400 CRISIL BB+/Watch Negative Proposed Long Term Bank Loan Facility 43400 CRISIL BBB+/Watch Negative
Proposed Short Term Bank Loan Facility 25000 CRISIL A4+/Watch Negative Proposed Short Term Bank Loan Facility 25000 CRISIL A3+/Watch Negative
Term Loan 144987.6 CRISIL BB+/Watch Negative Term Loan 144987.6 CRISIL BBB+/Watch Negative
Total 326380 -- Total 326380 --
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February 15, 2016

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