Fitch says Sunshine Holdings new equity issue not enough for ratings upgrade

May 21, 2018 (LBO) – Fitch Ratings says current ratings of Sunshine Holdings will remain unchanged as the projected fall in net leverage from the proposed private placement will be insufficient to trigger an upgrade.

Fitch, however, says Sunshine Holdings (A-(lka)/Stable) plan to bring in new equity of 775 million rupees from a private placement of shares should help the company deleverage and strengthen its balance sheet.

Sunshine used mostly debt in 2017 to fund a 2.9 billion rupees purchase of an additional stake in its plantation business, which drove up leverage substantially.

“We estimate that a successful private placement would see the company’s net leverage improve to 2.0x in the financial year ending March 2019, from our 2.4x forecast,” Fitch said.

According to Fitch, Sunshine’s net leverage is defined as lease-adjusted debt net of cash/operating EBITDAR, including proportionate consolidation of Estate Management Services (Private) Limited.

Estate Management Services (Private) Limited is the holding company for the agriculture and consumer goods segments.

“The estimate is still higher than the 1.5x threshold below which we may upgrade the company’s rating.”

On 17 May 2018, Sunshine, through a stock-exchange filling, announced an issue of 11.9 million ordinary shares by way of a private placement to SBI Ven Holdings Pte Limited (SVH).

According to the public announcement, the proceeds will be used to reduce the company’s net debt by partly repaying debt at the holding company, while maintaining any balance in term deposits.

Following this transaction, SVH will increase its stake in Sunshine to 18 percent, from 11 percent.

Sunshine expects the share issue to be completed by end-June 2018 subject to regulatory and shareholder approval.