JP Associates: On verge of default?

Debt-saddled Jaiprakash Associates, the flagship company of JP Group, tanked in trade today after Care Ratings downgraded its debt rating to a default category.Care Ratings cut JP Associates' debt rating to "D" from "BB" earlier, citing a delay in debt servicing on account of weak liquidity. Care Ratings in its report said deterioration of the company's financial performance and delay in receipt of funds through monetization of assets have affected the liquidity position of the company and led to delays in debt servicing.

JP Associates bank loans worth Rs 25,280 crore and long-term NCDs worth Rs 29,303 crore were assigned a default rating. Some of the largest names in the banking industry have significant exposures to the group. According to a report by Morgan Stanley, CARE cutting the company's rating to D from BB is a big negative for banks. Morgan Stanley has in fact pegged total debt for JP Associates at around 0.4 percent of the banking system in India, and at 1 percent for the JP Group. The report says ICICI Bank's exposure to JP Associates stands at around Rs 5,780 crore, followed by State Bank of India (SBI) at Rs 2,812 crore. IDBI's exposure is pegged at around Rs 2,270 crore and IFCI at Rs 629 crore. The report highlights that it is unlikely that banks will push the company towards restructuring in the near term.  Sources in the banking industry confirmed the news to CNBC-TV18, saying that there have been delays in re-payment on debt for JPA, but the account remains standard and has not fallen into the NPA or non-performing asset category yet.Sources CNBC-TV18 spoke to also added that there is no proposal for additional lending to JP Associates on the table as of now, and a corrective action plan to bring the company back on track will involve more sales of both core and non-core assets of the company.

Remember, Jaypee Group's Manoj Gaur has sold almost a fifth of his group's assets in order to pare down the massive debt, but the consolidated debt at the group level still stands at over Rs 61,285 crore.

For the fiscal FY15, JP Associates reported a net loss of Rs 1,110 crore on a total operating income of Rs 10,854 crore on a standalone basis as compared with profit after tax (PAT) of Rs 414 crore on a total operating income of Rs 13,328 crore in FY14. On a consolidated basis, the company reported a net loss of Rs 1,543 crore on an operating income of Rs 19,650 crore in FY15 as against net loss of Rs 703 crore on a total operating income of Rs 20,007 crore in FY14.