By Rushali Srivastava
The Red Flag stock screener lists out the stocks whose debt was given a recent downward rating by credit rating agencies. Some companies that have reported downward rating to default are DHFL, McLeod Russel India, Cox and Kings. Here's a look at some of the companies in the screener which received recent downgrades:
Cox and Kings
Cox and Kings defaulted on another Commercial paper on July 1, 2019 after failing the debt repayment obligation towards maturity of unsecured commercial papers on June 26, 2019 which resulted in credit rating downgrade.
Brickworks and Care ratings downgraded various instruments of the company. It has cut ratings from ‘A1+’ to ‘D’ of company’s Rs 375 Cr CPs and Rs 1685 Cr CPs. The working capital situation of the company is not very good due to its inability to replace short term loans with long term loans.
The company is taking measures to resolve the cash flow mismatch and working towards increasing the operational performance.
It made a new 52 week low on July 5, 2019 at 28.6 and has fallen by 87.7% from its 52 week high of 232.4.
McLeod Russel
McLeod Russel India reported that ICRA downgraded the long term ratings from ‘B-’ to ‘D’ and the short term rating from ‘A4’ to ‘D’ due to delay in meeting the debt obligations. The default was on the borrowing worth Rs 1031.1 Cr.
The ratings will continue to remain on “Issuer not Cooperating” category as the company is not sharing enough information to analyse its financials. The company suffered a loss as it did not make provisions for advances to promoters. It missed repayment of debt on June 1, 2019.
Its share fell by 5% on July 4, 2019 after the downgrade.
Reliance Capital
Reliance Capital Bonds’ rating has been downgraded by CARE from ‘A’ to ‘BBB’ due to defaults by two of its subsidiaries- Reliance Home Finance and Reliance Commercial Finance. There is a depletion of liquidity and high dependance on planned disinvestments for repaying the debts.
Both companies are seeking to raise funds through issue of fresh equity as the holding company Reliance capital is looking forward to give ownership to investors at the right price.
Reliance Capital is further looking forward to sell its holding in several assets to raise funds including all its stake in Reliance Nippon Life Asset management. The stock made 52 week low on June 19, 2019 at 54.2 after the downgrade.
Dewan Housing Finance
Commercial papers issued by Dewan Housing Finance Corp (DHFL) was downgraded by CRISIL to default category from A4+ after the company missed the interest payment on its non convertible debentures on June 4, 2019. ICRA, Care Ratings and Brickworks Ratings has also downgraded the credit rating of DHFL to ‘D’.
DHFL’s weak liquidity is the main reason for the downgrade. CRISIL said, “The downgrade is driven by more-than-expected reduction in the company's liquidity because of further delays in fundraising from sell down of project finance loans and lower inflows from securitisation of non-housing loans”.
DHFL made its 52 week low on June 19, 2019 at 63 after the downgrade.
Yes Bank
ICRA and India ratings have downgraded the credit rating of Yes Bank in May 2019. They have lowered the lender’s long term rating due to some of its loan exposure that turned into bad loans.
ICRA observed weakening in the bank’s capital and the bank also reported a loss of Rs 1506 Cr in March 2019 quarter led by increased credit cost and decline in non interest income. ICRA downgraded Tier-I bonds from ‘AA-’ to ‘A’ and Tier-II bonds from ‘AA’ to ‘AA-’.
India Ratings downgraded three instruments including Rs 11,000 Cr Tier II bonds and additional Tier I bonds worth Rs 11,000 Cr.
The share price of the company fell to double digits for the first time in five years, hit the 5 year low after the downgrade in June, 2019. Yes Bank plans to raise capital by public and private share sales. It made a new 52 week low on July 5, 2019 at 90.65. In recent days share price has been rising after the Bank said the operational performance was healthy, and that reported weakness was 'malicious rumour'.
Tata Motors
S&P Global Ratings has downgraded the credit rating of Tata Motors and its wholly owned subsidiary Jaguar Land Rover (JLR) majorly due to weak profitability of JLR in March 2019. It has cut its rating on senior unsecured notes of JLR and Tata Motors from ‘B+’ to ‘BB-’.
On June 20, 2019 Moody’s also downgraded its credit rating for Tata Motors to Ba3 from Ba2. JLR did not perform well and its cash flow is under pressure mainly due to rising competition, ongoing weakness in diesel car sales in Europe and the UK and adoption of electric and hybrid vehicle technology. In addition to this Tata Motor’s downgrade was also due to demand slowdown in India and tightening liquidity.
It has fallen 41.52% from its 52 week high of 282.
Canara Bank
Canara Bank reported on 29th June, 2019 that ICRA has downgraded the credit rating of the bank. The additional Tier-I bonds worth Rs 1500 crore has been downgraded from ‘AA’ to ‘AA-’ with a stable outlook. Tier-II bonds worth Rs 7900 crore has been downgraded from ‘AAA’ to ‘AA+’.
An improvement in the bank’s performance in asset quality and solvency is expected therefore it has been kept in the ‘stable’ category.
The stock is performing well and has gained 40% from its 52 week low of 204.8 and is bullish w.r.t. market.
