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Rating Rationale
Brickwork Ratings assigns ‘BWR A-(SO)’ rating to Dolvi Minerals & Metals
Pvt. Ltd.’s proposed long term Non-Convertible Debentures (NCD) issue of
Rs 700 Crs having tenor up to 5 Years and 15 Days
Brickwork Ratings (BWR) has assigned a ‘BWR A-(SO) (Pronounced BWR A Minus
(Structured Obligation)’ Ratings1 with stable outlook for Dolvi Minerals & Metals Pvt.
Ltd.’s (DMML) proposed structured NCD issue of ₹ 700 Crs having tenor up to 5 years and 15
days. Instruments with BWR A-(SO) rating are considered to have adequate degree of safety
regarding timely servicing of financial obligations. Such instruments carry low credit risk.
The rating primarily factors the support of JSW group and especially that of its flagship
Company JSW Steel Ltd. to the proposed issue by DMML, letter of comfort to be provided by
JSW Investments Ltd., Put Option structure incorporated in the transaction through another
group Company JSW Projects Ltd. However, the rating is constrained by high dependence on
the performance and continued support from JSW Steel Ltd. in terms of purchase of entire coke
from DCPL, weak financials of the other group Companies connected with the issue and the tail
risk embedded in the issue.
BWR has essentially relied upon the draft terms of issue shared with it, financial results of JSW
Steel Ltd. and JSW Projects Ltd., for FY14 and information and clarifications provided by
DMML.
Dolvi Minerals & Metals Pvt Ltd (DMML), promoted by Vinamra Consultancy Pvt. Ltd. was
incorporated on August 22, 2014 with a paid up capital of Rs One Lac. At present Vinamra
Consultancy Pvt. Ltd., holds 99.99% share in the Company. The Company proposes to increase
the share Capital to Rs 100 Crs in due course. After proposed issue DMML will become a part of
JSW Group. At present Mr. Bhushan Prasad and Mr. Surendranath Vandakudri are the
Directors of the Company. DMML is engaged in the business of acting as traders, whole-sellers
and retailers in all forms of metallic and non-metallic minerals, which includes coal and lignite,
coal products and iron and steel products etc.
Being a newly incorporated Company, DMML has no revenues as of now. It expects to generate
a substantial portion of revenue from the dividend income from its investment in Dolvi Coke
Projects Ltd. and from trading activities.
DMML proposes to raise ₹ 700 Crores by issue of NCDs with a tenor of 5 years and 15 days in
two tranches of ₹ 350 Crs each. The NCDs would be secured by pledge 40% equity shares of
DMML held by JSW Steel Ltd. The terms of issue require the issuer to fund the Debt Service
Account 15 days before the due date and also provide that if the issuer fails to provide required
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Please refer to www.brickworkratings.com for definition of the Ratings
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funds accordingly, the investors, through the debenture trustee can exercise the put option on
JSW Projects Ltd. (JPL). In addition, another group company JSW Investments Pvt. Ltd. would
also provide a Letter of Comfort for the proposed NCD issue by DMML. The entire proceeds
from the proposed issue will be used by Dolvi Minerals and Metals Pvt. Ltd to purchase 100%
stake in Dolvi Coke Projects Ltd., which is setting up a 3 MTPA recovery Coke oven plant at
located at Dolvi, District Raigad, Maharashtra.
Dolvi Coke Projects Ltd. (DCPL)
DCPL is setting up a 3 MTPA recovery type coke oven plant at located at Dolvi, District Raigad,
Maharashtra, consisting of 4 coke oven batteries of capacity of 0.75 MTPA each. The plant will
have Coal and Coke handling facilities for the production of metallurgical coke along with the
by-products viz. Coke Oven Gas, Tar, Sulphur & Benzol. The Company also proposes to install 2
x 190 tph CDQ for quenching of hot coke which will generate steam to be used to generate
power. Under an exclusive arrangement, the coke manufactured by DCPL will be entirely sold to
the Dolvi unit of JSW Steel Ltd. The cost of the project is ~₹ 3000 crores, which would be
funded in the debt to equity ratio of 73:27. DCPL was incorporated on March 15, 2014 and at
present has a paid up capital of Rs 2.05 Crs. Post the proposed NCD issue the share Capital of
DCPL will increase to Rs 800 Crs. It is crucial for the Company to ensure commencement of the
operation of Coke oven plant as scheduled in the year 2017-18. The Board of JSW Steel Ltd. has
already approved execution of take or pay agreement with DCPL.
JSW Steel Ltd. (JSWSL):
JSW Group is one of the large growing business conglomerates with a strong presence in the
core economic sector led by Mr. Sajjan Jindal. As part of the US $ 18.0 billion O. P. Jindal
Group, JSW Group has diversified interests in Steel, Energy, Minerals and Mining,
Infrastructure and Logistic, Cement and Information Technology.
JSWSL is the largest steel maker in India with a capacity of 14.3 MTPA (including JSW Ispat
Steel Ltd.) and consists of modern, eco-friendly steel plants with the latest technologies for both
upstream & downstream processes. It started its business operations in the year 1994 in the
name of Jindal Vijaynagar Steel Ltd promoted by Jindal Iron and Steel Co. Ltd and Karnataka
State Industrial Investment and Development Corporation Ltd. through its steel plant with a
capacity of 1.25 MTPA of hot rolled coils at Toranagallu village in Karnataka. JSWSL has its
facilities at Vijaynagar (Karnataka), Vasind and Tarapur (Maharashtra) and Salem (Tamil
Nadu). JSW Steel Ltd. (JSWSL) is a group company of JSW group headed by Mr. Sajjan Jindal.
JSW Steel Ltd.’s consolidated Operating income has increased from ₹ 38,210 Crores in FY13 to
₹ 51,220 Crores in FY14. However, PAT has decreased from ₹ 963 Crores in FY13 to ₹ 452
Crores in FY14 mainly due to high interest cost and exceptional item/ foreign exchange losses of
₹ 1713 Crs. EBIDTA has increased from ₹ 6504 Crs in FY13 to ₹ 9165 Crs in FY14. Crude steel
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production stood at 12.17 million tonnes in FY14, and Quantity of steel sold stood at 11.86
million tonnes in FY14.
JSW Projects Ltd. (JSWPL)
The terms of the proposed NCD issue provide for the investors to exercise the Put Option in the
event of DMML’s inability to fund the designated debt service account by T-15th day and JSW
Projects Ltd. (JSWPL)is required to honour such put option at the end of 5 years and 5 days
from the date of allotment of the NCD, if exercised by the investors. JSWPL is owned by JSW
Investments Pvt. Ltd., which in turn is owned by the promoters of the JSW group. The company
was floated by the JSW group for setting up and operating a 1.2 million tonnes per annum
(mtpa) COREX gas based DRI plant, four Coke Dry Quenching (CDQ) plants with an aggregate
capacity of 3.42 mtpa and a 76 Mega-Watt (MW) CPP based on waste heat recovery from CDQ
process. The project is a part of JSWSL’s integrated steelmaking capacity expansion program to
10 mtpa at Vijayanagar works (Karnataka). JSWSL entered into a Build Own Operate Transfer
(BOOT) agreement with JPL, which is valid either for eight years from the COD or till March 31,
2020, whichever is later. Beyond this period, JPL will transfer the assets to JSWSL at 25% of
book value.
JPL acts as a conversion company with regard to CDQ process. After processing, dry quenched
coke is returned to JSWSL and in turn, JPL receives fixed conversion charges for the volume
processed. In terms of the arrangement with JSWSL, the entire output of JPL’s DRI plant would
be procured by JSWSL at prevailing market price. In the event of lower off-take by JSWSL, JPL
will be compensated for any shortfall in realization as per applicable DRI charges to the extent
of the deficient quantity. The sales agreement entered between JPL and JSWSL, which
guarantee minimum off-take/processing volumes, is expected to ensure adequate cash flow for
servicing debt obligations of JPL. The DRI plant has been operational since January, 2014. Total
project cost of Rs. 2,735 crore was being funded with a debt to equity of 3.0:1.0x. In FY14, JPL
had Rs 510.65 Crs of Net-worth as compared to Rs 311.06 Crs in FY13. Its Borrowings stood at
Rs 2020.77 Crs in FY14.
Key financial figures of the Company are given in Annexure II.
JSW Investments Pvt. Ltd. (JSWIPL):
JSW Investments Pvt. Ltd. (JSWIPL) was incorporated on March 31, 2005. It is wholly owned
by JSW group and promoted by Mrs. Sangita Jindal w/o Mr. Sajjan Jindal, Vice Chairman and
Managing Director of JSW Steel Ltd. Mr. Sundeep Jain has been appointed as a Director of
JSWIPL form February 21, 2014 in place of Mr. Deepak Bhat. JSWIPL is engaged in Investment
in Group Companies, Treasury Management and Portfolio Management Services etc. JSWIPL
will provide Letter of Comfort for the proposed NCD issue. JSWIPL’s total income increased to ₹
121.96 Crs in FY14 as compared to ₹ 33.50 Crs in FY13 mainly due to high dividend income
from its long term investments. Long term borrowings have increased from ₹ 1623.95 Crs in
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FY13 to ₹ 2087.00 Crs in FY14 mainly towards investment in group Companies. The Company
remained in losses after tax of ₹ 3.36 Crs in FY14 against a similar type of loss of ₹ 53.04 Crs in
FY13 mainly due to high finance cost.
Outlook:
In most of the business areas in which the JSW Group operates, growth prospects are also
dependent on policy decisions at the national level and prevailing Industry trends. The rating
of the proposed NCD issue of Rs 700 Crs by DMML is very significantly influenced by the
support provided by its promoter group Companies and especially by the strategic support of
JSWSL and track record of JSWSL in terms of performance and meeting debt obligations. Based
on the above, the outlook for the rating is assessed to be stable. The key rating sensitivities are
the continuing support from JSW Steel Ltd. in terms of purchase of entire coke form DCPL and
other group companies to DMML, timely execution of DCPL’s Coke Oven project, operating and
financial performance of DMML, DCPL JSW Steel Ltd. and the ability of JSWPL to meet the
put option of the investors of the proposed NCD issue by DMML. Brickwork Ratings expects
that JSWSL and other group Companies will continue to support DMML and will ensure that it
meets obligations under the proposed NCD issue promptly.
Analyst Contact
Relationship Contact
[email protected]
[email protected]
Phone
Media Contact
1-860-425-2742
[email protected]
Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources,
which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or
completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty
of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR
should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses
incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any
reasons.
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