Shares of Jain Irrigation Systems fell 4 percent intraday on October 16 after Fitch downgraded its rating after the company defaulted on bank loans.
The stock corrected more than 80 percent in last one year amid rising debt concerns. It was quoting at Rs 13.15, down Rs 0.45, or 3.31 percent on the BSE at 1219 hours.
Fitch Ratings said it has downgraded the micro-irrigation company's (JISL) Long-Term Issuer Default Ratings (IDR) to 'RD' from 'CCC-' and the rating on its $200 million 7.125 percent senior unsecured notes due in 2022 to 'C' from 'CCC-' with a Recovery Rating of 'RR4'.
The downgrade follows JISL's uncured payment default on working capital debt, following which the lenders are pursuing an out-of-court debt resolution process, it added.
The global rating agency said all ratings have been removed from Rating Watch Negative (RWN).
The notes are issued by JISL's wholly-owned subsidiary, Jain International Trading BV, and guaranteed by JISL.
Jain Irrigation informed Fitch that it failed to meet debt service commitments on its working capital facilities in India with delays between 60 to 90 days in some cases.
JISL's working capital lenders have signed an inter-creditor agreement (ICA), whereby the lenders introduce policies for the resolution of stressed assets under the Indian Regulatory Framework.
"Fitch's understanding is that lenders are pursuing an out-of-court process to formulate a debt resolution plan by early January 2020," the rating agency said.
JISL faces formal insolvency proceedings if its liquidity position does not improve and lenders initiate legal proceedings upon the failure of the debt resolution efforts, it added.
The ICA dated July 5, 2019, signed by the Indian working capital lenders has a review period of 180 days, in accordance with Reserve Bank of India regulations. The lenders have appointed Brescon to work on a resolution plan.
"Nonetheless, we believe the risk of insolvency is high, considering uncertainty around the timing of collection of overdue government receivables. JISL's access to new debt capital is poor in our view, considering the default on its working capital debt and signing of the ICA," Fitch said.
JISL is exploring the sale of minority stakes in some of its businesses to reduce debt. It is highly uncertain if JISL can achieve it in a timely manner to avoid insolvency proceedings, it said.
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