The liquidity condition of ABG Shipyard is facing continued stress owing to large work-in-progress inventory relating to oil rigs, India Ratings said.
The shipyard is facing delay in executing a novation agreement with a large client and an associate company.
Novation is the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party.
The large client of ABG Shipyard failed to offtake two oil rigs worth $21,485 million from ABG Shipyard earlier this year, the latter decided to sell the rigs to its associate company, which was to fund the purchase of rigs through an issue of bonds.
As the bond issuance has been delayed, India Ratings expects ABG ShipyardÂ’s liquidity profile to have weakened significantly, due to large work-in-progress inventory relating to the rigs.
Consequently, India Ratings downgraded ABG ShipyardÂ’s long-term issuer rating to ‘IND BBB’ from ‘IND A-Â’ and maintained it on Rating Watch Negative (RWN).
The agency has also downgraded the company’s Rs 2 billion non-convertible debenture programme to Long-Term ‘IND BBB’ from ‘IND A-’ and maintained it on RWN.
The ratings are based on a consolidated view of ABG Shipyard and its subsidiaries.
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