ICRA has revised the outlook to ‘Negative' on the ratings outstanding of AA and A1+ on Rs 7.91 billion non-convertible debenture programme, Rs 1.50 billion commercial paper programme and Rs 17.46 billion bank lines of Deepak Fertilisers & Petrochemicals Corporation (DFPCL). The ratings, which were on watch with developing implications since April 2014, have been removed from the rating watch.
The revision in outlook follows the stoppage of domestic gas supply to DFPCL's Plant situated at Taloja, Maharashtra by Gas Authority of India (GAIL) and Reliance Industries (RIL) w.e.f. May 15, 2014 pursuant to the order by Ministry of Petroleum & Natural Gas (MoPNG), Government of India. The company has already approached the Honourable High Court of New Delhi to seek appropriate remedial measures. In the meanwhile, the gas supply cut continues to remain in force and fertiliser plants are under shutdown.
In ICRA's view, the financial risk profile of the company would be adversely impacted if the company is not able to get the Stay Order against the decision of MoPNG to stop the domestic gas supply as the company would have to rely on imported ammonia which would increase its cost of production. The company is looking at enhancing the trading activity to partly compensate for the loss of profit from the gas supply cut. ICRA is closely monitoring the developments and would conclude its rating action based on developments in this regard.
ICRA also notes that the company, together with 100% subsidiary SCM Soilfert (SCMSL) has made an open offer for purchase of up to an additional 26% stake in Mangalore Chemicals and Fertilisers (MCFL) from the public shareholders of the latter. The open offer was triggered by the proposal to purchase two million shares of MCFL (representing ~1.7% of the shareholding of MCFL) by SCMSL. Subsequently, Zuari Agro Chemicals Limited (ZACL), entered into an agreement with the Vijay Mallya-led UB group in relation to their shareholdings in MCFL, triggering the open offer.
The counter open offer was made on May 13, 2014 at Rs 68.55 a share (9% higher price than DFPCL's revised offer price). DFPCL is presently evaluating the counter offer. Given that the financial implications of the proposed share acquisition are unclear at this juncture pending clarity on the company's future plans in relation to the acquisition, ICRA will continue to monitor the situation and finalise its rating action once further details relating to the transaction are made available by the company.
