Mumbai: Care Ratings has downgraded ratings of Morgan Credit Pvt Ltd (MCPL) to BBB minus from A minus on account of the fall in stock price of the underlying shares of YES Bank Ltd which are held by the company.
YES Bank co-promoters Rana Kapoor and his family-owned firm MCPL is one of the promoters of the bank, holding 3.03% stake as on March 31, 2019. Along with its entities, the company held 10.62% stake in the private sector bank.
"The rating is based on internal credit enhancement of loan backed by pledge of shares. The rated NCD is backed by the unencumbered listed shares of Yes Bank Limited (YBL) held by Morgan Credit Private Limited (MCPL) or MCPL’s promoters and/ or their relatives," said the agency.
On 24 July, Mint had reported that MCPL had been forced to pledge its entire 7.34% stake with Reliance Nippon Life Asset Management Ltd (RNAM), asset manager of Reliance Mutual Fund (MF). The move follows the mutual fund converting a previously unsecured loan into a secured loan.
As the bank’s stock has lost 80% over the past year, an unsecured loan availed by MCPL from RNAM through issuance of non-convertible debentures (NCDs) has been converted into a secured loan by creating a pledge on the entire 170.25 million shares held by Kapoor and MCPL.
Last year, MCPL had raised ₹1,160 crore by issuing NCDs to RNAM. A prepayment of ₹200 crore was made by MCPL to Reliance MF in November. The loan pact mandates that the value of YES Bank shares (held by Kapoor and MCPL) should always be greater than double the loan outstanding.
In FY18, MCPL made losses worth Rs.26.05 crore on total income of ₹22.18 crore. The losses were on account of accrued interest cost that the company incurred for borrowings invested in operating subsidiaries. The company will likely recover losses once dividend starts flowing from those investments.