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Fitch Downgrades Essar Group’s construction arm

Ratings provider Fitch has downgraded the debt of Essar Projects Ltd, the holding company of the various construction companies of Essar Group, to ‘B-‘ from ‘B’.

The primary reason is a wind-down of construction activity within Essar Group, which is largely into the energy business.

“Essar Project’s order book shrank to USD3.5bn in FY13 from USD6.27bn in FY12 and it is expected to have remained at around USD3.5bn in FY14. This was largely because the capex plans of most of the companies in the Essar group, which are major customers of EPL, are close to completion and the weak economic growth in India has slowed new external orders,” Fitch said.

Fitch expects EPL’s revenue to have fallen by 10% in FY14 to about USD1.4bn. EPL’s revenue declined by 25.9% in FY13 to USD1.57bn.

The downgrade also reflects the weakening of company’s financial profile.

“EPL’s financial profile has weakened over the last two years due mainly to an increase in debt. The company’s net leverage (Net adjusted debt/ Operating EBITDAR) is likely to deteriorate to more than 5.5x by FYE14 from 4.85x at FYE13 and 4.12x at FYE12,” Fitch said.

Fitch expects EPL’s financial profile to remain weak in the near term given its high debt levels.

On the positive side, the share of orders from EPL’s external customers has increased to 46% in FY13 (FY12: 17%) and is expected to have reached 86% in FY14, Fitch said.

“The improving diversity of EPL’s customer base is likely to benefit the company over the medium term.”

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