Sanjeev Gupta’s InfraBuild cops credit rating downgrade with worse to come, Moody’s says
The credit rating of Sanjeev Gupta’s steel products company InfraBuild has been downgraded with a negative outlook with earnings expected to continue to fall.
Moody’s has downgraded the debt held by Sanjeev Gupta’s Infrabuild to a lower tier of junk with a negative outlook given its “material decline” in operating performance over the past 12 months.
The Australian-based steel products maker’s credit rating has been downgraded from B3 to Caa1, indicating the debt is “speculative, of poor standing and are subject to very high credit risk’’ according ot Moody’s criteria for debt ratings.
“The downgrade of InfraBuild’s ratings reflects the material decline in operating performance over the last 12 months due to softening market conditions, resulting in credit metrics breaching thresholds set for the previous rating as well as pressure on InfraBuild’s financial covenant levels,’’ Moody’s said.
“We understand the company received a covenant waiver for August 2024, and remains in late stage discussions with lenders on amendments to its covenant thresholds.’’
Moody’s said it was their view that the company’s current capital structure was unsustainable “given its materially high debt costs which we expect will result in negative free cash flow over the next 12-18 months and continue to put pressure on InfraBuild’s credit metrics and liquidity profile’’.
“Further, the rating and outlook also reflects our belief that the company could face challenges refinancing upcoming debt maturities, with uncertainty around its plans to address its asset-backed term loan (ABTL) due in May 2026,’’ Moody’s said.
“While refinancing risk has reduced following the partial prepayment of the ABTL, if the company were to release escrow funds for a distribution and need to repay the remainder of the facility with internal sources, we would view its remaining liquidity levels as unsustainable given its high working capital requirements.
“However, we note that the company has demonstrated access to capital recently through its bond tap issuance of $US200m incremental senior secured notes in August 2024.”
Moody’s said it expected InfraBuild’s performance to decline further over the next 12 months “as Australia’s sluggish residential activity continues to impact steel volumes sold, and as lower, albeit stabilising, steel prices and spreads reduce the company’s operating margins’’.
“We also anticipate further cost pressures in fiscal 2025 arising from the unplanned production stoppage at its affiliate and supplier Whyalla steelworks.
“Additionally, the negative outlook also reflects the uncertainty in terms of receiving the required ongoing waivers and/or amendments of its ABTL covenants.
“In the medium to long term, there will likely be scope for operating performance to improve, as government-sponsored infrastructure spending and the need to address Australia’s housing shortage, supports long-term underlying demand.’’
InfraBuild is one of the two major arms of Mr Gupta’s GFG Alliance operating in Australia, with the other being Liberty Primary Metals Australia, which operates the Whyalla steelworks.
The Australian reported on Tuesday that the UK arm of proferssional services firm Grant Thornton has appointed a restructuring adviser to canvass its options around the $950m GFG Alliance owes to its former financier Greensill, none of which it has paid back since the lender spectacularly collapsed in 2021.
Moody’s said it udnerstands that InfraBuild has been negotiating to have funds currently under escrow released to help prop up GFG.
“We expect that these funds will be used for a distribution to facilitate a settlement at the ultimate parent group, GFG Alliance, with its creditors,’’ Moody’s said.
“We will continue to monitor the use of the remaining proceeds from the ABTL as well as any further financing transactions that InfraBuild pursues.’’
Infrabuild makes structural and sheet steel, and other flat steel products used in construction.
It operates across more than 150 sites in Australia including arc furnaces at Rooty Hill and Laverton.
Moody’s said that at the end of June this year, InfraBuild had about $313m of unrestricted cash on its balance sheet which would likely be adequate to fund its capital expenditure and working capital needs for the next year.
But the agency still viewed InfraBuild’s liquidity profile as weak given its expectations that debt covenants would remain in breach until further waivers were executed, the company’s reliance “on only internal sources going forward, which will leave liquidity very sensitive to its ability to maintain and improve operating performance’’, and the increasing refinancing risk around the ABTL debt maturing in May, 2026.