ICRA has reaffirmed the AA- rating assigned to the Rs 2 billion non-convertible debenture programme of Thomas Cook (India) and removed the 'Rating Watch with Developing Implications'. The outlook on the rating is 'stable'.
The removal of the rating watch follows the assessment of impact of Sterling Holiday Resorts (India)'s merger with Thomas Cook Insurance Services (India), a wholly-owned subsidiary of TCIL, on TCIL Group's credit profile. The merger deal, structured as a multi-stage process - is valued at a cash consideration of upto Rs 5.93 billion and a share swap.
TCIL will be funding the same through Rs 5 billion Compulsorily Convertible Preference Shares (CCPS) issued to its promoter Fairbridge Capital (Mauritius) on Mar.31, 2014 and internal accruals. The transaction is expected to close by Q4 CY 2014, subject to customary closing conditions and regulatory approvals as required.
While the proposed acquisition of SHRIL is expected to provide cross synergies in leveraging opportunities in growing domestic and inbound travel, vacation ownership and hospitality businesses, ICRA notes that SHRIL has posted sustained losses over the last several years on the back of sub-optimal capacity utilisation on account of low memberships.
However, with efforts initiated towards refurbishment of its resorts, which is also reflected in improvement in SHRIL's occupancy levels, the business is expected to turn around in the medium term. ICRA also notes that the high capital intensive nature of operations inherent to the Vacation Ownership and Resorts business is in contrast to TCIL's existing low capital intensive travel and human resource services business. However, the preference capital infusion by the promoters is expected to maintain the leverage for the consolidated entity at comfortable levels. Improvement in the performance of SHRIL operations through ongoing refurbishment and operational synergies with TCIL is a key rating sensitivity.
The rating continues to factor in the leadership position enjoyed by TCIL in the Indian travel and tourism industry as well as foreign exchange market on account of 133 years of operations; the well integrated business model offering one-stop solutions as well as opportunities for cross selling products to customers and a large operating scale supported by a well established distribution network and strong bargaining power with vendors across the value chain. ICRA also draws comfort from the strong parentage and support from the ultimate holding company, Fairfax Financial Holdings.
Shares of the company declined Rs 1.45, or 1.44%, to trade at Rs 99.50. The total volume of shares traded was 49,187 at the BSE (3.54 p.m., Friday).
