At a time Patanjali Group is struggling to raise funds required to pay the Committee of Creditors (CoC) of edible oils maker Ruchi Soya for its acquisition, another Indian rating agency Brickwork ratings has downgraded the Group’s Patanjali Foods and Herbal Park Nagpur Private Limited as project failed to begin its commercial operations by October this year, as earlier envised, as its existing lenders are delaying lending loans.
On 5 November, Brickwork Ratings downgraded the long term rating for the Bank Loan facilities of Patanjali Food and Herbal Park Nagpur Private Limited to BBB+ and placed it under 'rating watch with developing implications'. Earlier in October, the agency had downgraded Patanjali Ayurved Limited's ratings for the loan facilities from 'stable to 'negative'. Stating reasons for downgrading, Brickwork noted: “PAL’s dependence on debt funded capex (including the Ruchi Soya Industries Ltd takeover) may adversely impact its gearing and debt coverage indicators. The other constraints such as concentrated shareholding pattern, intense competition from other large FMCG (fast moving consumer goods) players and absence of diversified board remain unchanged.”
On July 26, National Company Law Tribunal (NCLT), Mumbai had approved Pantanjali Ayurved Limited’s (PAL) proposal for the acquisition of Ruchi Soya. According to the proposed plan, PAL made a Rs 4,350 crore offer, of which, Ruchi Soya’s lenders (banks) will get Rs 4,240 crore for their dues and another Rs 110 crore is to be investedin Ruchi Soya’s expansion post-merger.
While it is not clear by what time PAL would finish the acquisition of Ruchi Soya, according to a source from Insolvency Bankruptcy Board of India, the government is planning to introduce a new provision under Insolvency and Bankruptcy Code to debar companies which fail to complete acquisition within committed time they had agreed to pay for acquisition.
“The Committee of Creditors could file for criminal proceedings if the acquiring company fails to payback the agreed amount made in the deal,” the above-mentioned source told Newsclick.
In October, ICRA and CARE rating agencies have downgraded ratings for bank loan facilities of PAL.
On October 4, rating agency ICRA has downgraded PAL's 'Fund Based Cash Credit Limit' instrument to ICRA BBB from ICRA A+ in April 2019. “The ratings downgrade is because of lack of adequate information regarding Patanjali Ayurved Limited ’s performance and hence the uncertainty around its credit risk,” stated ICRA.
CARE in October has stated that the sizable acquisition of Ruchi Soya, constitutes to 151% of PAL’s net worth as on March 31, 2019
However, PAL has been struggling to raise loans for the acquisition. According to news reports, PAL had approached State Bank of India, Punjab National Bank, Bank of Baroda, Union Bank and Jammu and Kashmir Bank for the purpose, but the banks are being jittery, as several rating agencies have downgraded Patanjali.
Interestingly, several of these banks have been the major lenders to the crippled Ruchi Soya company. Among the top lenders, State Bank of India had an exposure of Rs 1,800 crore, followed by Central Bank of India at Rs 816 crore, Punjab National Bank at Rs 743 crore and Standard Chartered Bank at Rs 608 crore and DBS at Rs 243 crore. These banks took a haircut of about 65% as Ruchi Soya’s outstanding dues were Rs 12,100 crore.
Meanwhile, Union Finance Minister Nirmala Sitharaman in October has advised banks to give up any hesitation in giving loans to self-help groups and companies backed by spiritual leaders. However, market observers have ridiculed Sitaraman’s advice for lacking rationale.