India Ratings downgrades Ford India's ratings

Chennai, Sep 22 Credit rating agency India Ratings and Research, downgraded Ford India Private Ltd's long term issuer rating to 'IND A+' from 'IND AA-'.

According to India Ratings, the outlook is 'Stable' for Ford India which has announced its decision to stop car production in India.

"The downgrade reflects the developing implications with respect to the operational and credit metrics of the entity post restructuring, the quantum of outflows on account of the restructuring, and the agreements with various stakeholders," India Ratings said.

On September 9, 2021, Ford India announced that it will wind down vehicle assembly in Sanand, Gujarat by the fourth quarter of 2021, and vehicle and engine manufacturing in Chennai by the second quarter of 2022.

India Ratings said Ford India's vehicle assembly operations for the domestic market were stopped with immediate effect. The company's vehicle assembly plants in Sanand and Chennai will continue to operate till 4Q21 and 2Q22, respectively, only for exports.

The company is also shutting down its captive engine manufacturing plant in Chennai.

"Resultantly, the restructured FIPL (Ford India Private Ltd) would exist for (i) operating the engine manufacturing plant in Sanand for exports, mainly to Thailand; (ii) after-sales services and sales of parts for existing customers of Ford in India; and (iii) importing FMC's (Ford Motor Company) completely built units for sale in India," India Ratings said.

According to the credit rating agency, with the closure of automotive operations, Ford India's revenue from operations is likely to fall to Rs 2,000-3,000 crore in FY22 from Rs 13,516 crore in FY21.

India Ratings said Ford Motor Company has extended corporate guarantees to 85 per cent of Ford India's sanctioned working capital facilities.

Ford India's unguaranteed external debt was largely in the form of a deferred sales tax liability.

Curiously, India Ratings has not mentioned the quantum of Ford India's deferred sales tax liability this time around, while last month it had said the due was about Rs 602 crore.

Queried on payment of the dues to the governments and the timeline following the decision to close down the plants, the company had earlier told IANS: "We continue to work closely with the relevant governmental agencies in relation to the restructuring and are thankful to Governments in Tamil Nadu and Gujarat, as well as the Centre, for their support and understanding."

India Ratings said, Ford India's net debt stood at about Rs 6,316.3 crore as on September 15, 2021 of which 70 per cent was inter-corporate loans from Ford Motor Company.

Accordingly, 83 per cent of Ford India's FY21 interest payments pertained to inter-corporate loans.

Ford India's term debt repayments of about Rs 93.5 crore and Rs 91.5 crore is due in FY22 and FY23, respectively (in absence of any accelerated payments), the rating agency said.

According to India Ratings, Ford India's cash and equivalents balance would not be adequate to fund its operational cash outflows, capex and term-repayments.

But with continued support of Ford Motor Company, Ford India's liquidity would remain adequate.

(Venkatachari Jagannathan can be contacted at [email protected])