Fitch Ratings has downgraded Kotagala Plantations PLC’s (Kotagala) National Long-Term Rating to ‘RD(lka)’ (Restricted Default) from ‘CC(lka)’.
The National Rating on its outstanding senior secured debentures has been downgraded to ‘C(lka)’ from ‘CC(lka)’ to reflect low recovery prospects amidst significant prior ranking and secured debt.
The downgrade reflects the company’s confirmation that it did not pay the Rs.250 million principal due on 26 May 2020 of its Type C secured redeemable debentures, and the absence of a grace period. The company says it will meet the aggregate interest payments of Rs.34 million on the Type C and Type D debentures as scheduled, in line with the terms and conditions of the indenture.Kotagala has announced that it intends to restructure the principal repayment on the Type C debentures, as well as the Rs.250 million principal due on its Type D secured redeemable debentures, which are due on 26 May 2021.
“A completed debt restructuring would result in a rating upgrade to a level that reflects the company’s post-restructuring capital structure and business risk. Conversely, liquidation would result in a downgrade to ‘D(lka)’,” Ftich said. The rating agency does not expect Kotagala to be able to generate adequate EBITDA to cover its interest expenses and maintenance capex in the foreseeable future. This is in spite of profitable oil palm plantations contributing more to its EBITDA in the medium term, which will mitigate the losses in its structurally declining rubber business.