In an interview to CNBC-TV18, P Sudhakar, additional general manager, CARE Rating speaks about the rationale behind upgrading Aban Offshore from a ‘D’ rating to ‘BB-’
Sudhakar says there have been numerous positives in the industry as well as the company that has led to this upgrade.
What seems to have worked for the company is the steps it has taken to improve its balancesheet by raising equity and its refinancing of overseas liabilities of USD 2 billion.
Below is the verbatim transcript of P Sudhakar's interview with Reema Tendulkar and Sumaira Abidi on CNBC-TV18.
Reema: Walk us through the rationale for upgrading Aban’s rating considering that the debt in the book still stands at more than Rs 13,000 crore?
A: If you look at the rating, it has been at D for the past two years since July 2012 and there have been major developments which has taken place in the past two and a half years both under company specific and industry specific factor. Specific to industry, there has been improvement on the global fleet utilisation levels in the past two and a half years.
On the deployment side, there has been improvement in the past two years, which has reflected in better income and profitability. Also the company has taken various steps on the balancesheet side to improve with respect to equity side they have raised around Rs 750 crore in the current financial year and also there was further equity infusion through conversion of warrants. Besides this they have also gone for refinancing of their overseas liabilities. They have recently refinanced almost USD 2 billion worth of debt with a longer repayment term, which gives them the flexibility and also helps them to manage their cash flows better going forward.
Sumaira: Their finance cost is so high that it has been eating into their margins with this now what is your estimate of how much it could come down by?
A: I will not be able to give specifics on how much but the key point we need to notice is that there has been significant amount of rupee debt which was lying in the parent company Aban Offshore Ltd which was taken over by the subsidiaries because if you look at most of the debts in the parent company was earlier taken to fund the capex and other requirements of the subsidiaries. So all these rigs have come into operational. So they slowly started moving debt from the parent company to subsidiary company and moreover these debts are taken in the currencies matching with their cash flow. So in terms of data also, it is converted from rupee to the foreign currency debt. So there also there should be significant savings on the interest side.
Reema: Do you see this improvement in the company’s financials as well as the balancesheet continue? Yes, it has improved over the last two years but can it continue to improve and do you think eventually there is a case to CARE to upgrade the ratings of Aban even further?
A: I will not be able to comment on upgrades but we periodically take a review of the situation. Generally we take it once in a year or if there are significant developments like equity infusion or the major improvements then we take a relook at the ratings periodically.
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