Credit Analysis & Research (CARE) has assigned 'AA (credit watch)'ratings against Rs 5 billion non-convertible debenture of Deepak Fertilisers & Petrochemicals Corporation (DFPCL).  CARE also has assigned 'A1+ (credit watch)'ratings against Rs 2.50 billion commercial papers  of the company.

CARE has placed its ratings on the instruments of Deepak Fertilisers and Petrochemicals Corporation (DFPCL) on ‘Credit Watch' following an open offer to acquire additional 26% stake in Mangalore Chemicals and Fertilizers. 

In July 2013, DFPCL (through its wholly owned subsidiary SCM Soilfert (SCMSL) acquired 24.46% stake in Mangalore Chemicals and Fertilizers (MCFL) for an aggregate consideration of Rs 1.80 billion. On Apr. 23, 2014, the open offer was triggered with a proposal of SCMSL to acquire additional 2 million fully paid up equity shares representing up to 1.7% shareholding in MCFL for a total consideration of Rs 126 million. Accordingly in terms of the extant SEBI regulations, SCMSL together with DFPCL has made an open offer to the public shareholders for acquiring additional 26% stake in MCFL. The total consideration assuming full acceptance will be Rs1.90 billion to be paid in cash. In the event of full acceptance of the open offer, DFPCL will hold 52.16% shareholding in MCFL. 

MCFL is a part of the Bengaluru-based (Karnataka) UB group. It manufactures both Nitrogenous and Phosphatic fertilizers such as urea, di-ammonium phosphate (DAP), and other complex fertilizers. With the manufacturing facility at Panambur in Mangalore (Karnataka), MCFL has a capacity to manufacture 0.38 MTPA of urea, and 0.26 MTPA of DAP and other complex fertilizers. Majority of the company's products are sold in the state of Karnataka with a modest share of the market in the neighboring states of Kerala, Tamil Nadu, Andhra Pradesh and Maharashtra. 

The acquisition shall help DFPCL to strengthen its product offering in fertilizer segment and increase the geographical spread as there is not much overlap as far as the distribution of products is concerned. However, considering the payments to be made in cash as per SEBI regulations, the liquidity profile of DFPCL could be impacted. 

Considering the uncertainty with regard to outcome of the acquisition of further stake through the proposed open offer and pending clarity on DFPCL's future plan of action, the ratings have been put on credit watch. Final view on the credit ratings of DFPCL will be taken subsequent to discussion with the management on the matter and receipt of complete details on the acquisition.