By Jindal Haria

India Ratings and Research (Ind-Ra) has rated TGS Investment & Trade Private Limited’s (TGS) commercial paper (CP) as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating

Rating Action

CP

-

-

-

INR8,000

IND A1+

Assigned

KEY RATING DRIVERS

Promoter Support: TGS is an investment company in the Aditya Birla Group. TGS is registered as a core investment company with the Reserve Bank of India (RBI). Moreover, it is among key holding companies of the group that have significant holdings in important operating entities. Ind Ra believes TGS along with other holding companies can access liquidity and other resources from the group as and when required. 

High Investment Value of Listed Operating Companies:
As on 25 September 2017, TGS held 5.46% in Grasim Industries Limited, 0.20% in Hindalco Industries Limited, 9.1% in Aditya Birla Fashion and Retail Limited (‘IND AA’/Stable) and 2.28% in Aditya Birla Capital Limited, as well as had some unlisted investments. The market value (on 25 September 2017) of listed investments is over INR63 billion as against the book value of total investments (on 31 March 2017) of INR10.69 billion. The total debt on 31 March 2017 was INR10.46 billion. In Ind-Ra’s stress case scenario, the market value of total investments compared to the current debt level remains fairly reasonable. Hence, the agency expects a sufficient cover in the short-term for proposed borrowing limits. In addition, loans to group entities (INR 2.2 billion as on 31 March 2017) are callable and help in raising cash. Ind-Ra expects TGS to not pledge material shareholding in key operating entities. 

Healthy Financial Profile:
TGS had a gearing of 4.1x in FY17. Its core investment company leverage (calculated as per regulatory guideline) was comfortable at 0.4x in FY17 compared with the regulatory limit of 2.5x.  This provides the company with enough buffers to raise its borrowings up to the proposed amount.

Refinancing Risk of Borrowings Mitigated by Liquid Investments:
Although TGS receives dividends from operating entities, they are inadequate to cover financing expenses. Therefore, it always faces a refinancing risk. However, the interest servicing shortfall is less than 1% of the market value of the investments, providing sufficient buffers for maintaining capitalisation buffers and moderate leverage. 

The management plans for interest service and refinance much in advance to avoid any bunching of payments. TGS could resort to long-term borrowings or liquidating a small portion of its holdings in the event of a short-term liquidity squeeze, though it has rarely resorted to it historically. The maturity of borrowing remains spread out. 


RATING SENSITIVITIES

Negative: A sharp fall in the valuation of quoted investments or a change in the leverage or share pledge levels that may not be sustainable in Ind-Ra’s view and affect the company’s ability to service debt obligations in stressful scenarios could lead to a downgrade.
 


COMPANY PROFILE

TGS, along with other holding companies, has notable strategic investments in the operating companies of the Aditya Birla group. 

FINANCIAL SUMMARY

Particulars

FY17

FY16

Total assets (INR million)

13,028.9

10,889.7

Total equity (INR million)

2,530.1

2,966.4

Net income (INR million)

-436.2

-353.7

Equity/assets (%)

19.4

27.2

Debt/equity (x)

4.1

2.7

Source: Company annual report

 

 



COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, structured finance and project finance companies. 

Headquartered in Mumbai, Ind-Ra has six branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Kolkata. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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Analyst Names

  • Primary Analyst

    Jindal Haria

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001750

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121