iEnergizer Ltd. Downgraded To 'B' Following Parent's Debt Issuance; Outlook Stable; Off CreditWatch

  • iEnergizer's ultimate parent, Geophysical, has raised more than US$150 million to fund its capital expenditure, resulting in higher leverage amid moderating cash flows.
  • We expect iEnergizer, the only free cash flow generating subsidiary of the group, to extend necessary financial support to the parent by way of dividends. Therefore, Geophysical's weaker group credit profile constrains our rating on iEnergizer.
  • We are lowering our long-term issuer credit rating on iEnergizer and the issue rating on the company's bank loan to 'B' from 'B+'. We are also removing the ratings from CreditWatch, where they were placed with negative implications on Dec. 18, 2018.
  • The stable outlook on iEnergizer reflects our outlook on Geophysical.
SINGAPORE (S&P Global Ratings) Jan. 10, 2019--S&P Global Ratings said today 
that it had lowered its long-term issuer credit rating on iEnergizer Ltd. to 
'B' from 'B+'. The outlook is stable. At the same time, we lowered our 
long-term issue rating on the company's bank loan to 'B' from 'B+'.

We removed all the ratings from CreditWatch, where they were placed with 
negative implications on Dec. 18, 2018. 

iEnergizer is an India-based global business process outsourcing (BPO) 
services provider. Geophysical Substrata Ltd., a holding company based in the 
British Virgin Islands, owns about 83% of iEnergizer through its wholly owned 
subsidiary EICR (Cyprus) Ltd.

We downgraded iEnergizer because we believe the credit profile of the 
company's ultimate parent, Geophysical, has deteriorated following a US$151.5 
million debt issuance in December 2018 under its US$400 million medium-term 
note program. 

We believe dividends from iEnergizer and SDP Services Ltd. (another subsidiary 
of Geophysical that operates in the oilfield services business segment) will 
remain the only source of funds for Geophysical. The weakened credit profile 
of Geophysical will therefore constrain iEnergizer's financial position. 

Geophysical's debt issuance and planned capital spending for the oilfield 
services business are likely to keep its leverage high over the next 12-18 
months. The company's business position also remains weak owing to its small 
operating scale, limited market share, and exposure to a weak counterparty in 
the oilfield services business. We assess Geophysical's credit profile at 'b' 
and the stand-alone credit profile (SACP) of iEnergizer as 'b+'. 

We believe iEnergizer will remain integral to the Geophysical group's 
long-term strategy and growth. We understand that iEnergizer's parent, EICR, 
and SDP Services, are co-guarantors for the debt at Geophysical. iEnergizer's 
presence in the BPO services business also enhances the group's revenue 
diversity. The company's stable operating performance tempers the weakness in 
the group's oilfield services business, in our view. We expect iEnergizer to 
contribute to over two-thirds of the group's consolidated revenue and almost 
one-third of the consolidated EBITDA over the next 12-24 months.

We anticipate that iEnergizer will maintain healthy operating cash flows over 
the next two years. The company's high-margin back office services (BOS) and 
real-time processing (RTP) businesses should drive revenue growth over this 
period. iEnergizer's operating performance has stabilized over the past 12-18 
months with new customer wins across these business segments. The addition of 
new customers has also lowered the businesses' client concentration and fueled 
growth. We estimate that iEnergizer will generate US$20 million-US$25 million 
of free operating cash flows over this period owing to its stable 
profitability and low capital expenditure requirements.

We note that the covenants under iEnergizer's bank loan currently restrict 
dividend distributions. However, successful refinancing or repayment of the 
loan due in April 2019 will give the company added flexibility to support debt 
servicing at Geophysical, in our view. 

We expect iEnergizer to maintain financial discipline (even with such 
additional financial flexibility), given the presence of minority shareholders 
and an independent board. However, this remains to be tested. Since 
Geophysical is a significant majority owner of iEnergizer, it can exercise 
control over the company's cash flows. We therefore cap the rating on 
iEnergizer at the group credit profile.

The stable outlook on iEnergizer reflects our outlook on Geophysical.

We could lower our rating on iEnergizer if we downgrade Geophysical or, in a 
remote instance, we lower our assessment of iEnergizer's SACP by two notches.

We may lower our rating on Geophysical if the company faces liquidity pressure 
or its EBITDA interest coverage approaches 2x on a sustained basis. This could 
happen if: (1) the company's oilfield services or software services businesses 
lose clients, resulting in a material decline in revenues; or (2) the company 
takes on debt to fund growth significantly beyond our expectation or makes 
substantial related-party distributions, investments, or advances.

We are likely to lower our view of iEnergizer's SACP by one notch if the 
company's financial position deteriorates such that its ratio of FFO to debt 
falls below 30% sustainably. This could happen if iEnergizer loses clients or 
the company pursues substantial debt-funded acquisitions or shareholder 

We may raise the rating on iEnergizer if we upgrade Geophysical. However, we 
are unlikely to upgrade Geophysical over the next 12-18 months given its very 
small scale, high concentration to a weak counterparty, and large debt-funded 
investment plan. 

We could raise our rating on Geophysical if: (1) we expect the company to 
remain debt-free; or (2) the financial position of its single counterparty 
significantly improves resulting in steady cash flows, and the company commits 
to not undertaking any significant related party distributions, investments, 
or advances.
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