Rating Rationale
January 18, 2023 | Mumbai
Panatone Finvest Limited
Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'; rated amount enhanced for Commercial Paper
 
Rating Action
Rs.50 Crore (Reduced from Rs.325 Crore) Non Convertible DebenturesCRISIL AAA/Stable (Reaffirmed)
Rs.8950 Crore (Enhanced from Rs.8675 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 Limited (Panatone). CRISIL Ratings has withdrawn its rating on proposed non-convertible debentures of Rs 275 crore on receiving confirmation from the company, as the same was unutilised. The rating withdrawal is in line with CRISIL Ratings’ policy for withdrawal of rating.

 

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. Panatone may use the proposed borrowing towards increasing investment in these sectors including by acquiring stake from other Tata group companies/refinancing of debt.

 

Panatone holds 44.8% stake in Tata Communications Limited (erstwhile Videsh Sanchar Nigam Limited; TCL; ‘CRISIL A1+’) which is valued at around 18,000 crores as on January 17, 2023 and forms majority of the value of Pantone’s investment portfolio. Further, Panatone holds ~52% stake in Tejas Networks Limited. The current market value of Pantone’s investment in Tejas Networks is around 4,500 Cr as on January 17, 2023.

 

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

 

The rating also factors in the strong credit profile of the operating company, TCL. These strengths are partially offset by modest ratio of market value of 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 telecom and media sectors, which complements the investment philosophy of Tata Sons. The Tata group has strong presence in these sectors with dominant holding in TCL (one of the leading global telecom service providers; 58.9% held by the Tata group) and Tata Play Ltd (market leader in direct-to- home [DTH] business; 62.2% held by the Tata group). Panatone played a central role in the group's entry into telecom by acquiring 45% stake in TCL in fiscal 2003. Panatone recently acquired majority stake in Tejas Networks Limited which is engaged in manufacturing of telecom equipment that are used by telecom service providers, utilities, government and defense networks.  Tata Sons continues to hold 99.99% stake in Panatone.

 

      Strong articulation of support by Tata Sons

Tata Sons has articulated its intention to 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 GoI, for Rs 3,389 crore (during March 16-18, 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 fiscal 2022, Tata Sons infused equity of around Rs 800 Cr to increase Panatone’s holding in Tejas Networks Limited. Furthermore, Panatone’s board comprises senior members of the Tata group, lending high management strength.

 

Panatone may raise borrowings up to Rs 9,000 crore for refinancing existing debt and/or making investments in the telecom and media sectors, including acquisition of majority stake in Tejas Networks Ltd. CRISIL Ratings believes given the strategic significance of Panatone and parent’s articulation of support, 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. TCL 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 existing investment portfolio majorly comprises investment in TCL and Tejas Networks. Standalone debt servicing is supported by dividend income from TCL. Market value of Panatone’s investments is around Rs 22,500 crore as on January 17, 2023 against outstanding external debt of Rs 4,800 crore. However, considering the total 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 times.

Liquidity: Superior

Panatone has high financial flexibility, supported by the strong parentage of Tata Sons. Further, liquid investment in TCL (listed entity) and Tejas Networks Ltd (listed entity) had market value of around Rs 22,500 crore as on January 17, 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 on the parent, leading to a corresponding rating revision for Panatone

About the Company

Panatone is a closely held investment company, registered with the Reserve Bank of India as a core investment company. 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 acquired 45% stake in Tata Communications Limited (erstwhile Videsh Sanchar Nigam Limited; TCL; ‘CRISIL A1+’) in calendar year 2002 for a consideration of Rs 2600 crore. Subsequently, Panatone divested part stake in TCL to Tata Sons and repaid the debt. In quarter ended June 2018, Panatone acquired 4.71% stake from The Tata Power Company Limited (‘CRISIL AA/A1+’) and another additional 10% stake from Govt of India taking its holding to 44.8%.

Key Financial Indicators (CRISIL Ratings-adjusted numbers)

Particulars

Unit

2022

2021

Revenue

Rs crore

199*

51

Profit after tax (PAT)

Rs crore

(65)

29

PAT margin

%

NM

57%

Adjusted debt / adjusted networth

Times

1.50

1.03

Interest coverage

Times

0.80

3.38

NM: Not meaningful

*Includes non-cash income of Rs 19 crore (Rs 12 crore in fiscal 2021) towards fair value gain in financial instruments in fiscal 2022

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

INE116F14141

Commercial Papers

31-Jan-22

5.60%

30-Jan-23

3,8­00

Simple

CRISIL A1+

INE116F14133

Commercial Papers

26-Aug-21

7.35%

25-Aug-23

1,000

Simple

CRISIL A1+

NA

Commercial Papers*

NA

NA

7-365 days

4,150

Simple

CRISIL A1+

NA

Non- convertible

debentures*

NA

NA

NA

50

Simple

CRISIL AAA/Stable

*Yet to be raised

 

Annexure- Details of Rating Withdrawn

ISIN

Name of Instrument

Date of

Allotment

Coupon

Rate (%)

Maturity

Date

Issue Size

(Rs.Cr)

Complexity

Level

NA

Non-convertible debenture^

NA

NA

NA

275

Simple

^These NCDs were 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+   -- 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   -- 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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