Jain Irrigation Systems Downgraded To 'CCC' On Diminished Liquidity; Ratings Remain On Watch Negative

  • Jain Irrigation Systems Ltd.'s liquidity remains tight, with low cash position and diminished unutilized credit lines.
  • The company's efforts to collect outstanding receivables and tie up additional working capital facilities are taking longer than expected.
  • Jain's consortium bankers are in the process of signing an intercreditor agreement, adding to the uncertainty.
  • On July 26, 2019, S&P Global Ratings lowered its long-term issuer credit and issue ratings on Jain to 'CCC' from 'B-'.
  • The CreditWatch placement signals a potential for missed interest payment and/or debt servicing obligation over the next three months, in the absence of additional credit lines and timely receivables collection.
SINGAPORE (S&P Global Ratings) July 26, 2019--S&P Global Ratings today lowered its long-term issuer credit and issue ratings on Jain Irrigation Systems Ltd. to 'CCC' from 'B-' to reflect the company's diminishing cash position and slow progress in securing additional working capital facilities. This significantly increases the risk of delay in debt servicing over the near term.
We think Jain's cash position of about Indian rupee (INR) 1.5 billion and very high utilization of up to 95% under its existing credit facilities reflect a thin liquidity position as well as uncertainty around timely servicing of its obligation. The company is exposed to delays in receivables collection from state governments as well as working capital buildup in its largely seasonal business.
Jain has made considerable progress and reiterated its commitment for the upcoming bond interest payment due on Aug. 1, 2019. However, there is uncertainty whether it has accumulated adequate funds for timely payment of about INR0.5 billion (US$7.0 million) on the US$200 million bond.
We believe the company is making efforts to arrange for additional working capital funding. The State Bank of India (BBB-/Stable/A-3)--the lead consortium banker for Jain's working capital facilities--has already subscribed to 30% of the additional INR4.0 billion facility, while other banks are awaiting approval.
We think this additional facility will be crucial for Jain to tide over its cash flow mismatches without delaying its debt service obligations. However, the consortium banker's move to enter an intercreditor agreement--even though expected to be procedural as of now--does not instill much confidence.
In our view, Jain has started receiving payments from its government-led irrigation projects and it expects to collect about INR2.5 billion pending receivables over the next two months or so. Coupled with improving micro-irrigation sales after the monsoon, this could alleviate some of the company's cash crunch. However, Jain remains exposed to uncertain weather conditions and a weak market sentiment.
The CreditWatch reflects a potential for missed interest payment and/or debt servicing obligation over the next three months, in the absence of additional credit lines and timely receivables collection.
We will lower the ratings on Jain by one or more notches if the risk of missed interest payment and/or debt servicing rises over the next three months. This could happen if the company fails to secure additional credit lines due to weakening banking relationships and if the receivables collection cycle stagnates.
We could affirm or raise our rating by one notch over the next three months if Jain improves its liquidity buffer through a combination of new additional working capital facilities, sufficient cash balance, and unused working capital lines through timely receivables collections. This is assuming that the company maintains its banking relationships.
Jain is an India-based company engaged in the manufacture of plastics-based micro-irrigation piping and plumbing systems. It is the world's second-largest provider of such systems, behind Israel-based Netafim Ltd. The company also has a growing food processing business--which mainly produces fruit pulp, dehydrated onions, and spices.
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com