Rating Rationale
December 01, 2023 | Mumbai
Panatone Finvest Limited
Ratings Reaffirmed
 
Rating Action
Rs.50 Crore Non Convertible DebenturesCRISIL AAA/Stable (Reaffirmed)
Rs.8950 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the debt instruments of Panatone Finvest Ltd (Panatone).

 

The ratings reflect strong parentage of, and high strategic importance to, Tata Sons Pvt Ltd (Tata Sons; 'CRISIL AAA/Stable/CRISIL A1+'). The rating also factors in the outstanding track record of need-based support extended by Tata Sons to group companies along with its articulation to support Panatone in debt servicing.

 

Panatone operates as an investment holding company of the Tata group, with 99.99% stake in  Panatone held by Tata Sons. Panatone is the holding company for the Tata group’s investments in telecommunication (telecom) and media sectors. It holds 44.80% of Tata Communications Ltd (TCL; ‘CRISIL A1+’) and 55.97% of Tejas Networks Ltd (TNL). Panatone may use its proposed borrowing to increase investment in these sectors including by acquiring stake from other Tata group companies/refinancing of debt.

 

Strong support from the parent, Tata Sons, is demonstrated through articulation of its intention to maintain direct shareholding of not less than 51% in Panatone and assist Panatone in meeting its debt obligation in full and in a timely manner.

 

The ratings also factor in the strong credit profile of the operating company, TCL. These strengths are partially offset by the modest ratio of market value of its existing investments to proposed debt.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in the support available to Panatone from Tata Sons, given the company's strategic importance to the parent.

Key Rating Drivers & Detailed Description

Strengths:

     Strong parentage of, and high strategic importance to, Tata Sons: Panatone is a vehicle for the Tata group's strategic investments in the telecom and media sectors, which complements the investment philosophy of Tata Sons. The Tata group has dominant holding in TCL (one of the leading global telecom service providers; 58.9% held by the group). Panatone played a central role in the group's entry into telecom by acquiring 44.80% stake in TCL (erstwhile Videsh Sanchar Nigam Ltd) in fiscal 2003. In recent years, Panatone also acquired majority stake in TNL, which is engaged in manufacturing of telecom equipment that are used by telecom service providers, utilities, government and defense networks. Moreover, Tata Sons holds 99.99% stake in Panatone.

 

       Strong articulation of support by Tata Sons: Tata Sons has articulated its intention to always maintain majority shareholding in Panatone and assist Panatone in meetings its debt obligation. Moreover, Tata Sons has an excellent track record of extending need-based support to subsidiaries and group companies. In fiscal 2019, Tata Sons infused equity of around Rs 2,000 crore in Panatone to increase stake in TCL from 30.1% to 34.8%. In March 2021, Tata Sons provided  financial support to Panatone for acquiring additional 10% stake in TCL from the Government of India (GoI), for Rs 3,389  crore (in March 2021, GoI divested its entire 26.12% holding in TCL for Rs 8,846 crore including 10% stake to Panatone and the remaining through offer for sale to other investors). In fiscals 2022 and 2023, Tata Sons infused further equity of Rs 800 crore and Rs 300 crore respectively to increase Panatone’s holding in TNL. Furthermore, Panatone’s board comprises senior members of the Tata group, lending high management strength.

 

Panatone had outstanding external debt of Rs 4,110 crore as on September 30, 2023 in the form of commercial paper. Further, the company may raise the debt up to Rs 9,000 crore for refinancing existing debt and/or for investments in the telecom and media sectors. Given the strategic significance of Panatone and parent’s articulation of support, CRISIL Ratings believes the company will continue to receive need-based support     from the parent.

 

      Healthy credit profile of the operating company, TCL: Panatone generates dividend income from its investment in TCL, which has a strong and diverse business risk profile, reflected in its established market position as one of the leading data and voice service providers to enterprises and retail customers (80% and 20% share of data and voice, respectively, in TCL’s revenue). TCL operates one of the biggest global submarine cable networks. Furthermore, TCL’s healthy financial risk profile is supported by steady cash accrual, adequate debt protection metrics and strong liquidity.

 

Weakness:

  • Modest ratio of market value of existing investments to proposed debt: Panatone’s investment portfolio majorly comprises investment in TCL. Panatone acquired stake in TCL in fiscal 2003 for around Rs 2,600 crore, which was funded in debt-to-equity ratio of 1:1. Subsequently, Panatone divested part of its stake in TCL to Tata Sons and repaid the debt. Panatone had outstanding external debt of Rs 4,110 crore as on September 30, 2023 (against Rs 4,829 crore as on March 31, 2023). Standalone operations are supported by dividend income from TCL. Panatone’s financial risk profile benefits from healthy liquid investments, driven by market value of more than Rs 29,000 crore as on November 30, 2023, of investments in TCL and TNL, against outstanding external debt of Rs 4,110 crore. However, considering the proposed debt of Rs 9,000 crore, the cover (ratio of market value of existing & proposed investments to proposed debt) will be a modest 3.3 times.

Liquidity: Superior

Panatone has high financial flexibility, supported by the strong parentage of Tata Sons. Further, liquid investment in TCL (listed entity) and TNL (listed entity) had market value of more than Rs 29,000 crore as on November 30, 2023.

Outlook: Stable

CRISIL Ratings believes Panatone will remain strategically important to Tata Sons and continue to receive need-based support from the latter.

Rating Sensitivity factors

Downward factors

  • Change in Tata Sons’ strategic view on, and support philosophy towards, Panatone.
  • Reduction in Tata Sons' shareholding (direct) in Panatone below 51%.
  • Downgrade in the rating of the parent.

About the Company

Panatone is a closely held investment company, registered with the Reserve Bank of India as  a core investment company. The Tata group, through Panatone as a special purpose vehicle, purchased 25% shareholding in TCL from the government of India, followed by the acquisition of another 20% through a mandatory public offer in fiscal 2003. Originally, Tata Sons held 60.01%, while Tata Power Ltd, Tata Steel Ltd (TSL) and Tata Industries Ltd (TIL; ‘CRISIL AAA/Stable/CRISIL A1+’) held 39.97%, 0.01% and 0.01%, respectively. Post equity infusion in fiscal 2019, Tata Sons holds 99.99%, while TSL and TIL hold 0.001% each in Panatone. Panatone holds 44.80% stake in TCL and 55.97% stake in TNL as on September 30, 2023.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue*

Rs.Crore

283

199

Profit After Tax (PAT)

Rs.Crore

(63)

(65)

PAT margin

%

NM

NM

Adjusted debt/adjusted networth

Times

1.40

1.05

Interest coverage

Times

0.92

0.80

NM: Not meaningful

*Includes non-cash income of Rs 18 crore (Rs 19 crore in fiscal 2022) towards fair value gain in financial instruments in fiscal 2023.

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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

Level

Rating assigned with outlook

INE116F14158

Commercial Paper

22-Jan-2023

8.25%

22-Jan-2024

4,110

Simple

CRISIL A1+

NA

Commercial Paper*

NA

NA

7-365 days

4,840

Simple

CRISIL A1+

NA

Non- convertible

debentures*

NA

NA

NA

50

Simple

CRISIL AAA/Stable

*Yet to be raised

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 8950.0 CRISIL A1+ 18-01-23 CRISIL A1+ 24-01-22 CRISIL A1+ 26-08-21 CRISIL A1+   -- --
      --   --   -- 11-05-21 CRISIL A1+   -- --
      --   --   -- 03-05-21 CRISIL A1+   -- --
Non Convertible Debentures LT 50.0 CRISIL AAA/Stable 18-01-23 CRISIL AAA/Stable 24-01-22 CRISIL AAA/Stable 26-08-21 CRISIL AAA/Stable   -- Withdrawn
      --   --   -- 11-05-21 CRISIL AAA/Stable   -- --
      --   --   -- 03-05-21 Withdrawn   -- --
      --   --   -- 17-02-21 CRISIL AAA/Stable   -- --
All amounts are in Rs.Cr.

  

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Criteria for rating holding companies (including debt backed by pledge of shares)
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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