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The Investor Sentiment - Equity and investments forum for Sri Lankans

The Lankan Investor Forum - A more respectable and reasonable place for members to discuss matters regarding the CSEThe Lankan Investor Forum - A more respectable and reasonable place for members to discuss matters regarding the CSE

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2 posters

    Sri Lanka’s Kotagala Plantations downgraded to Restricted Default

    The Invisible
    The Invisible


    Posts : 3116
    Join date : 2016-11-28
    Age : 44

    Sri Lanka’s Kotagala Plantations downgraded to Restricted Default Empty Sri Lanka’s Kotagala Plantations downgraded to Restricted Default

    Post by The Invisible Sat May 30, 2020 8:58 pm

    ECONOMYNEXT – Sri Lanka’s Kotagala Plantations had been downgraded to Restricted Default (RD), from ‘CC(lka)’ after the company said it did not repay a 250 million rupee debenture on May 26 without a grace period.

    The company had said would restructure the debt.

    “A completed debt restructuring would result in a rating upgrade to a level that reflects the company’s post-restructuring capital structure and business risk,” Fitch said.

    “Conversely, Liquidation would result in a downgrade to ‘D(lka)’ ”

    The firm has rubber and palm oil plantations. Though palm oil was profitable, rubber was declining and insufficient cashflows were being generated, Fitch said.

    The full statement is reproduced below:

    Fitch Downgrades Kotagala to ‘RD(lka)’

    Fitch Ratings – Colombo – 28 May 2020: Fitch Ratings has downgraded Sri Lanka-based Kotagala Plantations PLC’s (Kotagala) National Long-Term Rating to ‘RD(lka)’ (Restricted Default) from ‘CC(lka)’.

    The National Rating on its outstanding senior secured debentures have been downgraded to ‘C(lka)’ from ‘CC(lka)’ to reflect low recovery prospects amidst significant prior ranking and secured debt.

    KEY RATING DRIVERS

    Missed Principal, No Grace Period: The downgrade reflects the company’s confirmation that it did not pay the LKR250 million principal due on 26 May 2020 of its Type C secured redeemable debentures, and the absence of a grace period.

    The company says it will meet the aggregate interest payments of LKR34 million on the Type C and Type D debentures as scheduled, in line with the terms and conditions of the indenture.

    Planned Debt Restructuring: Kotagala has announced that it intends to restructure the principal repayment on the Type C debentures, as well as the LK250 million principal due on its Type D secured redeemable debentures which are due on 26 May 2021.

    A completed debt restructuring would result in a rating upgrade to a level that reflects the company’s post-restructuring capital structure and business risk. Conversely, Liquidation would result in a downgrade to ‘D(lka)’

    Insufficient EBITDA Generation: Fitch does not expect Kotagala to be able to
    generate adequate EBITDA to cover its interest expenses and maintenance
    capex in the foreseeable future.


    This is in spite of profitable oil palm plantations contributing more to its EBITDA in the medium term, which will mitigate the losses in its structurally declining rubber business.

    DERIVATION SUMMARY

    The downgrade reflects payment default, and therefore Kotagala’s rating is multiple-notches lower than the ratings of its closest peers on the Sri Lanka national scale.

    KEY ASSUMPTIONS

    – Revenue to decline by around 17% in FY20 and 12% in FY21 – owing to the
    disruption to the plantation industry stemming from the COVID-19 outbreak.

    – EBITDA of around LKR100 million in FY20 and LKR70 million in FY21.

    – Average capex of around LKR200 million per annum over FY20-FY21.


    – No dividend payments during FY20-FY23.

    RATING SENSITIVITIES

    Factors that could, individually or collectively, lead to positive rating
    action/upgrade:

    Following a possible financial restructuring and once sufficient information is
    available, the ‘RD (lka)’ rating will be upgraded to reflect the appropriate National
    Long-Term Rating for the post-restructuring capital structure, risk profile and
    prospects in accordance with our criteria.

    Factors that could, individually or collectively, lead to negative rating
    action/downgrade:

    Kotagala entering into bankruptcy filings, administration, liquidation or other
    formal winding-up procedures.

    BEST/WORST CASE RATING SCENARIO

    International scale credit ratings of Non-Financial Corporate issuers have a bestcase
    rating upgrade scenario (defined as the 99th percentile of rating transitions,
    measured in a positive direction) of three notches over a three-year rating
    horizon; and a worst-case rating downgrade scenario (defined as the 99th
    percentile of rating transitions, measured in a negative direction) of four notches
    over three years. The complete span of best- and worst-case scenario credit
    ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case
    scenario credit ratings are based on historical performance. For more information
    about the methodology used to determine sector-specific best- and worst-case
    scenario credit ratings, visit [You must be registered and logged in to see this link.]


    LIQUIDITY AND DEBT STRUCTURE

    Poor Liquidity: As of the nine months ended December 2019, Kotagala had only
    LKR55 million in cash to meet LKR1 billion in secured debt maturities – excluding
    debenture principal – falling due within the following 12 months.

    Kotagala does not have the necessary funds to meet near-term debt obligations, and access to new capital is poor. Kotagala also has no unutilised credit lines to help ease its liquidity position.

    The company also has outstanding statutory payments amounting to around LKR900 million – which we expect to be delayed further until the company is able to reorganise. Apart from meeting principal payments, Kotagala’s ability to service its interest obligations remains a challenge in itself, as we expect EBITDA/interest paid to remain below 1.0x (last 12 months ended December FY20: -1.3x).

    REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS
    KEY DRIVER OF RATING

    The principal sources of information used in the analysis are described in the
    Applicable Criteria.
    slstock
    slstock
    Veteran
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    Posts : 6216
    Join date : 2014-06-12

    Sri Lanka’s Kotagala Plantations downgraded to Restricted Default Empty Re: Sri Lanka’s Kotagala Plantations downgraded to Restricted Default

    Post by slstock Sat May 30, 2020 9:17 pm




    Thanks.
    Would be good if you also could post the links  to original articles.

    ps : I made detailed post on this issue,  KOTA and its history ,
    some investment cautions on FB page a day ago.

      Current date/time is Sun Jun 16, 2024 2:42 am