Ratings agency Moody’s downgrades credit rating for British industrialist Sanjeev Gupta’s Infrabuild group

British industrialist Sanjeev Gupta is under more pressure after Moody’s downgraded the credit rating of his most profitable asset.

British Industrialist Sanjeev Gupta. Picture: AAP Image/Kelly Barnes

Ratings agency Moody’s has dealt embattled British industrialist Sanjeev Gupta a fresh blow, downgrading the credit rating of his most profitable asset on the back of the troubles engulfing his chief financier, Greensill Capital.

Moody’s issued the downgrade late on Thursday, cutting the credit rating of Mr Gupta’s Infrabuild group from Ba3 to B1 and putting Mr Gupta on notice he faces further downgrades as events unfold around him.

The decision will likely spike yields on Infrabuild’s $US325m in senior secured notes, and put further pressure on Mr Gupta’s GFG Alliance, which faces calls on debt of up to $US5bn owed to Greensill.

Infrabuild is the jewel in GFG’s crown, and Mr Gupta is still seeking to float the company - a profitable arm of his Australian businesses that runs electric arc furnaces, steel distribution, recycling and construction materials centres that employ about 4500 people across Australia.

Moody’s Vice President and Senior Credit Officer Matthew Moore said the downgrade reflected the increasing risk of “contagion” from the troubles besetting GFG due to its relationship with GFG.

“We believe that this contagion risk could impact InfraBuild’s operations, specifically its customer and supplier relationships. It may also increase demands on InfraBuild to raise its returns to GFG, although we note the ability to upstream funds is limited under InfraBuild’s funding arrangements,” Mr Moore said.

Moody’s said restrictions in Infrabuild’s financing documents would ultimately limit the amount of cash the broader GFG could draw from its books, but said the company’s liquidity was highly sensitive to working capital requirements, and said the exposure of Mr Gupta’s other Australian assets to Greensill - such as the Whyalla steel works, a key supplier of raw materials to Infrabuild - could hurt the company.

“In particular, this risk could manifest if InfraBuild’s related parties, which supply significant amounts of raw material feedstock and products for its distribution network, fall into financial distress. While InfraBuild could likely find alternate supply sources in the global market, Moody’s believes these agreements would take time to establish and could lead to operating disruptions and increased costs,” Moody’s said.

The ratings agency said the grant of security over Infrabuild’s shares to Greensill, revealed by the Australian last week, also posed a risk to the company’s credit worthiness.

“Moody’s views this security on the shares of InfraBuild as increasing the risk of a change of control under InfraBuild’s financing arrangements. However, given that InfraBuild’s creditors under its current funding arrangements have direct security over essentially all of the assets of InfraBuild, Moody’s expects any change of control would likely be executed in a way that attempts to avoid triggering a default under InfraBuild’s financing documents,” Moody’s said.

“Providing some support to InfraBuild’s overall credit profile is its improving operating performance. In the first half of the fiscal year ended June 2021, the company has been able to grow volumes while at the same time its margins are benefiting from its successful costout initiatives.

“This has allowed InfraBuild to report its second consecutive quarter of EBITDA per tonne above $95, which is flowing through to improving credit metrics. Liquidity was also maintained in the second half, with cash and credit facility availability in excess of $360m as at December 2020. Although, Moody’s expects that liquidity has reduced since December 2020 and the company has indicated that it has now drawn on its credit facilities to fund increasing working capital usage.”