Rating Rationale
September 02, 2022 | Mumbai
Greatship India Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.225 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable’ rating on the long-term bank facility of Greatship India Limited (Greatship).

 

The rating continues to reflect the company’s healthy business risk profile, supported by a young, technologically advanced and diverse fleet. Based on ongoing contracts, revenue days for the four rigs and 18 support vessels would be covered to the extent of 93% and 89% in fiscal 2023, respectively. One of the rigs whose contract ended in May 2022, has been re-contracted at a charter rate higher by approximately 50% than the previous rate, given the revival in the oilfield services business, with crude prices trending at elevated levels and domestic E&P (Exploration and Production) players undertaking continuous operations to maintain production levels.

 

The financial risk profile continues to remain comfortable, driven by a comfortable capital structure, improving debt protection metrics and healthy liquidity. Greatship is a wholly owned subsidiary of The Great Eastern Shipping Co Ltd (GESCO; rated ‘CRISIL A1+’), which follows a conservative risk management policy, wherein a stress test is conducted on a quarterly basis to ensure sufficient cash availability to meet the debt repayments in the coming three years, under a stressed earnings scenario.

 

The rating also reflects the company’s strong operational and financial linkages as well as strategic importance to GESCO. These strengths are, however, partially offset by the volatility experienced in the operating performance, caused by susceptibility of charter rates to fluctuations in crude oil prices, which are inherently volatile.

Analytical Approach

For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of Greatship and its subsidiaries as these entities are in a similar line of business and have strong operational and financial linkages. Furthermore, CRISIL Ratings factors in the expected financial support from GESCO to Greatship, given the latter’s strategic importance to the parent.

 

CRISIL Ratings has treated preference shares of Rs. 382 crore (including preference dividend), provided by GESCO, as debt as these shares carry a fixed dividend payment and will be redeemed by fiscal 2029.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Young, technologically advanced and diverse fleet: The company has 18 offshore-support vessels (eight anchor-handling tug-cum-supply vessels, four platform supply vessels, two multi-purpose platform supply and support vessels and four remotely operated, vehicle-support vessels) and four jack-up rigs. It strategically maintains a young and technologically advanced fleet, which has better functionality and operating efficiency than older vessels. Average age of the offshore support vessels and rigs (around 11.7 years as on March 31, 2022) is significantly lower than the industry average.

 

  • Strategic importance to, and financial linkages with GESCO: Revenue from Greatship accounted for around 20% of the parent's consolidated revenue in fiscal 2022 and the proportion is expected to remain at a similar level over the medium term. Given the strategic importance to GESCO, CRISIL believes the parent will continue to provide business, management, and financial support to Greatship.

 

  • Adequate financial risk profile: Greatship’s financial risk profile is driven by comfortable gearing and adequate liquidity. As on March 31, 2022, the outstanding debt in the books (including preference shares) was Rs 1,553 crore, resulting in a gearing of 0.60 times. Financial risk profile is expected to remain comfortable over the medium term, comforted by the conservative risk management policy the company follows, in terms of maintaining the leverage threshold and liquidity, which has enabled the gearing to always remain below 1. With no major capex planned in the near term, no fresh debt is expected to be availed.

 

Weakness:

  • Susceptibility of charter rates to inherent volatility in crude oil prices: Profitability and cash flows in the offshore business depend on the offshore charter rates, which are influenced by offshore and deep-water expenditure by oil majors. Offshore and deep-water block investments, which are larger than those in onshore blocks, are highly sensitive to crude oil prices. With slowdown in global oil and gas E&P capex, demand for offshore equipment declined, resulting in a fall in charter rates for offshore vessels and rigs by more than 50% in the past six years. While there has been an improvement in the charter rates for the recently contracted rigs, they are not expected to go back to the levels of $100,000/day over the medium term.

Liquidity: Strong

Greatship has adequate cash and cash equivalent of Rs 763 crore as on March 31, 2022. The company is expected to generate cash accruals of around Rs 220-240 crore in fiscals 2023 and 2024. The annual accruals generated as well as the surplus liquidity maintained, would be sufficient to meet its near-term annual repayment obligations of Rs. 200-300 crore. Greatship has received financial support from its parent, GESCO, in the past and is expected to continue to receive support during exigencies. Furthermore, Greatship has sufficient gearing headroom to contract additional debt, if required.

Outlook: Stable

CRISIL Ratings believes Greatship’s credit risk profile will be supported by adequate revenue visibility, healthy liquidity and continued support from the parent.

Rating Sensitivity factors

Upward factors

  • Sustained revival in rig charter rates to $70,000 per day and above
  • Uptick in the shipping business of the parent, resulting in significant improvement in its operating performance and credit risk profile


Downward factors

  • Sustained fall in rig charter rates to less than $25,000 per day
  • Higher-than-expected under-utilisation of vessels or rigs owned, weakening cash accrual and debt protection metrics
  • Reduced parental support or deterioration in the overall credit risk profile of GESCO

About the Company

Incorporated in 2002, Greatship is a wholly owned subsidiary of GESCO. Along with its subsidiaries, Greatship provides services in the offshore energy E&P domain and has presence in the offshore oilfield logistics support services, offshore construction services and offshore drilling services segments.

 

GESCO, set up in 1948, is the largest private sector shipping company in India. It mainly operates under two main businesses i.e. tankers and dry bulk carriers wherein it owns and operates 45 vessels (31 tankers and 14 dry bulk carriers) with a combined capacity of 35.7 lakh dead weight tonnage (as on March 31, 2022).

Key Financial Indicators (CRISIL Ratings-adjusted)

Particulars

Unit

2022

2021

Operating income

Rs crore

678

664

Profit after tax (PAT)

Rs crore

-144

-131

PAT margin

%

-21.2

-19.7

Adjusted debt/adjusted networth

Times

0.60

0.61

Adjusted interest coverage

Times

1.81

5.66

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of Instrument

Date of Allotment

Coupon

Rate (%)

Maturity

Date

Issue Size

(Rs crore)

Complexity

Levels

Rating Assigned

with Outlook

NA

Working Capital Demand Loan@

NA

NA

NA

225

NA

CRISIL AA-/Stable

@Interchangeable between non-fund-based facilities such as bank guarantee and letter of credit

Annexure – List of entities consolidated

Entity Consolidated

Extent of Consolidation

Rationale for Consolidation

Greatship Global Energy Services Pte. Ltd., Singapore

Full

Strong operational and financial linkages

Greatship Global Offshore Services Pte. Ltd., Singapore

Full

Strong operational and financial linkages

Greatship (UK) Ltd., United Kingdom

Full

Strong operational and financial linkages

Greatship Oilfield Services Ltd, India

Full

Strong operational and financial linkages

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 225.0 CRISIL AA-/Stable   -- 07-06-21 CRISIL AA-/Stable 31-07-20 CRISIL AA-/Stable 20-06-19 CRISIL AA-/Stable CRISIL AA/Negative
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Working Capital Demand Loan@ 100 Kotak Mahindra Bank Limited CRISIL AA-/Stable
Working Capital Demand Loan@ 100 ICICI Bank Limited CRISIL AA-/Stable
Working Capital Demand Loan@ 25 YES Bank Limited CRISIL AA-/Stable
This Annexure has been updated on 02-Sep-22 in line with the lender-wise facility details as on 19-Jul-22 received from the rated entity.
@Interchangeable between non-fund-based facilities such as bank guarantee and letter of credit
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Upstream Oil and Gas Sector
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for Consolidation

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