The filing for protection under Judicial Recovery by Shree Renuka Sugars’s (SRSL; 'IND BB-'/Negative) Brazilian subsidiaries is unlikely to impact SRSL's bankers and non-convertible debenture subscribers, says India Ratings and Research (Ind-Ra). However, one of the company's Indian bankers will be an exception with a total exposure of USD16.4 million.
Renuka do Brasil and Renuka Vale Do Ivai, collectively known as Renuka Brazil, are SRSL's Brazilian subsidiaries. SRSL has not extended any additional financial support to Renuka Brazil post 2010-2012 and neither has the existing corporate guarantee extended for loans availed by the latter been invoked. Thus, Ind-Ra does not expect any incremental drain on SRSL's standalone cash flows due to the filing.
In the agency's view, the relief package arising out of the filing if approved is likely to be effective only from FY17 and could result in a reduction in the consolidated debt levels (Brazilian debt levels for FY15: USD 650 million/Rs 44.2 billion - 50% of consolidated debt). This is considering the time frame involved between the formal acceptance by the judicial recovery law and the period involved in presenting the final plan to the court for its approval.
Ind-Ra's negative outlook on SRSL reflects the agency's expectation of the latter being exposed to refinancing risks in the interim. SRSL has scheduled standalone repayments (maturities of long-term loans) of Rs 4.1 billion and Rs 2.2 billion for FY16 and FY17, respectively. Given the prevailing sugar down-cycle, the agency expects SRSL's profitability to be impacted in spite of higher profitability in the by-products segment. For FY15, co-gen and ethanol profitability accounted for 25% of the total segment profitability. Consequently, Ind-Ra expects the operating cash flows to remain stressed over FY16-FY17.
The company is in discussion with its bankers to refinance some of its upcoming repayments.
Ind-Ra expects the sugar surplus to extend to the sugar season 2016 (SS16) and continue to reflect in depressed sugar realisations, which are at a seven-year low at 10.67cents/pound. The average sugar realisations have corrected 20.5% yoy to 13.6cents/pound based on the average 12 months trailing realisations ended August 2015. Average domestic sugar realisations declined 22% yoy to Rs 22,900/mt (end-August 2015: Rs 29,600/kg).
At FYE15, SRSL reported net leverage of 20.9x (FY14: 10.1x) and interest coverage (EBIDTA andinterest) of 0.5x (0.96x).
The agency rates SRSL's Rs 2,500 million non-convertible debenture programme at 'IND BB-' with a negative outlook. The entire repayments are due in FY18 and the coupon servicing is monthly.
