After failing to make payments to investors of non-convertible debentures, the rating of debentures of Morgan Credit Private Ltd, a company owned by the Rana Kapoor's family, has been downgraded, CARE Ratings said. The rating of the instrument has been revised from BB to D as the company failed to make payment after "put option" availed by the investor.
The revision in the rating of the above instrument is on account of the company's inability to repay post-exercise of the put option by the investor on account of stretched liquidity, a CARE statement said.
The rating for debenture was initially downgraded from A- to BBB- in September 2019 and later from BBB- to BB in March this year.
MCPL, a holding company having investments in various non-financial businesses, has Radha Khanna, Raakhe Tandon and Roshini Kapoor as directors. They collectively hold a 100 per cent equity stake (split equally between the three) in the company.
The company had applied for Core Investment Company (CIC) to the RBI as on September 26, 2016, but the approval is still awaited.
The MCPL had identified unlisted investments for divestment for the repayment of the balance outstanding debt. Additionally, it created a pledge on the unlisted shares of these identified investments in favour of the debenture trustee. "There has been continuous elongation in the timelines for the disinvestments, which further escalated since March 2020. On account of the same, the company witnessed liquidity stretch," CARE said.
Even though the maturity of the rated instrument was April 21, 2021 -- on account of the put option exercised by the investor -- the strain on the liquidity elevated further, CARE said.
"The investor through the put option notice dated June 12, 2020, with the put option date being July 19, 2020, but as the put option date was falling on a non-business day, the payment was to be made on July 17, 2020. However, the company has failed to make the payment," the Rating agency added.
As per CARE, the major operating companies of MCPL have a track record of a maximum of three years. These non-financial businesses are at present in the growth stage and are yet to break even.
Some of the more mature companies such as RAVI Integrated Logistics, RAVI Renewables, DoIT Sports, DoIT Talent Ventures and Azure Entertainment are projected to start generating positive cash flows from FY20 onwards, which would be utilised to pay a dividend to MCPL, it added.