Rating Rationale
September 29, 2023 | Mumbai
Sojo Infotel Private Limited
Rating Reaffirmed
 
Rating Action
Rs.200 Crore Non Convertible DebenturesCRISIL AAA (CE) /Stable (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(CE)/Stable' rating on the non-convertible debentures (NCDs) of Sojo Infotel Private Limited (SIPL).

 

CRISIL Ratings has taken note of the Asset Sale Event being applied on all the outstanding Debentures since the issuer i.e. SIPL has not exercised the Call Option on the Call Option Exercise Date i.e. September 25, 2023, as per the terms of the Debenture Trust Deed and other Transaction Documents. On occurrence of the Asset Sale Event, Axis Capital, acting on behalf of the Debenture Trustee, now has the unconditional, irrevocable and unequivocal right to proceed to act as arranger for the sale of all or any of the Secured Assets (i.e. Pledged Shares) of SIPL and Lava International Limited (‘Lava’). Consequently, as per the terms of the agreement, Axis Capital will endeavour, on a reasonable efforts basis, to procure a Purchaser to purchase the Pledged Shares. If Axis Capital is unable to identify a Purchaser for the sale of the Pledged Shares or in the event that the Purchaser identified for the sale of the Pledged Shares fails to purchase all or any part of the Pledged Shares by T-5 day, Axis Capital is unconditionally, unequivocally and irrevocably obligated to (either directly and/ or through its affiliates), purchase or fund the escrow account with the outstanding amount by T-1 day. CRISIL Ratings has also taken note that SIPL management is also in discussion with various investors for stake sale. Also, SIPL has deposited Rs 26 crore in escrow account for part repayment in September, 2023 and post repayment, the outstanding debenture shall be of Rs 174 crore. The company has cleared all interest payment dues till September 25, 2023. Further, it continues to maintain interest service reserve account (ISRA) equivalent to interest payable on the Debentures on immediately succeeding two Interest Payment Dates along with the Axis Capital Fees, in accordance with the Transaction Documents.

 

The rating continues to reflect the strength of the underwriting commitment provided by Axis Capital for the entire rated amount. The underwriting commitment is unconditional and irrevocable and also has a well-defined payment mechanism to ensure timely servicing of the debt obligations, and hence, reflects the credit strength of the arranger, Axis Capital.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has factored the underwriting commitment given by Axis Capital Limited for the proposed NCD issuance and has applied its criteria for rating instruments backed by guarantees. The 'CE' suffix reflects the payment structure that is designed to ensure full and time-bound payment to investors, as per the underwriting commitment by Axis Capital.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Credit enhancement in the form of underwriting commitment provided by Axis Capital Limited

The ratings centrally factor the strong credit profile of Axis Capital Limited and the credit enhancement in the form of underwriting commitment given by Axis Capital Limited for the proposed NCD issuance.

 

Axis Capital’s credit risk profile is expected to be strong driven the support it receives from Axis Bank Limited (rated CRISIL AAA/Stable/CRISIL A1+). Axis Capital is of strategic importance to the bank as it complements the latter's product offerings. Axis Capital also benefits from the operational and managerial support from Axis Bank in formulation of policies, oversight on underwriting transactions, etc. Axis Capital’s board comprises senior functional executives from Axis Bank, which ensures strong supervision of its performance by the bank. CRISIL Ratings believes the close operational, managerial, and financial linkages, and sole ownership of by Axis Bank, imply a strong moral obligation on the parent to support Axis Capital in case of any exigencies.

 

Well defined payment mechanism built into the transaction structure to ensure timely payments to debenture holders

The underwriting commitment from Axis Capital is unconditional and irrevocable, and it covers the whole quantum of the repayment obligation that may arise on redemption of the NCDs (including entire principal + accrued coupon). A well-defined payment mechanism has been put in place to ensure timely servicing of obligation to the investors.

 

T-structure for redemption of NCD:

  • The total tenor of the proposed NCD is for 36 months from the deemed date of allotment. However, the issuer has a call option embedded in the structure by way of which till the end of 30 months from the deemed date of allotment, the issuer can exercise the call option and deposit the entire proceeds for the debenture obligations (including entire principal and accrued coupon) in the escrow account. Such proceeds will be immediately (by giving a notice of 2 business days) utilized towards redemption of the outstanding NCDs.

 

  • However, in the event the issuer does not exercise the call option at the end of 30th month from the deemed date of allotment or on the occurrence of an Event of Default (EOD) (please refer annexure for list of event of defaults), an asset sale event is said to have occurred as a result of which the Debentures and all the Secured Obligations in respect thereof shall become due and payable on the

 

  • the date falling 6 months from the occurrence of the Asset Sale Event  or
  • the Redemption Date, whichever is earlier

 

  • On occurrence of such asset sale event, Axis Capital shall have an unconditional right to sell the Pledged Shares and/or other Security. The sale process will be initiated and Axis Capital shall arrange for investors to purchase the pledged shares and/or other Security. The consideration received through the sale process shall be at least equal to the purchase price (Principal value of the NCDs and the Coupon accrued on the NCDs until the date on which the NCDs are redeemed in full).

 

In the event Axis Capital fails to find an investor or if the consideration received through the sale process are less than the purchase price; at least 5 Business Days prior to (i) the date falling 6 months from the occurrence of the Asset Sale Event or (ii); Maturity Date, whichever is earlier; a purchase event is said to have occurred.

 

Upon occurrence of a Purchase Event, Axis Capital shall have an unconditional obligation to purchase or fund the Pledged Shares (in full or in part) for an amount equal to the Purchase Price or to the extent of shortfall in the consideration received through the sale process, fund the difference between the consideration received and the Purchase Price (or, in the absence of a Purchaser, the full Purchase Price), such that the total proceeds from the Purchase Event shall be equivalent at least the Purchase Price and will be used towards immediate redemption of the NCDs. Axis Capital will fulfill the obligation within four days of Purchase Event (i.e. no later than one day before the redemption date).

 

This payment mechanism is designed to ensure timely redemption of the debentures, which will be through monies from IPO / PE infusion arranged by Axis Capital as per the terms of the transaction / payments to be made in event of failure to meet obligations through the IPO.

 

Presence of 2 quarter ISRA for the entire tenor of the NCD:

Although the coupon payments under the proposed NCD issuance are expected, nevertheless, as per the terms of the NCD issuance, the issuer is required to maintain an ISRA for the entire tenure of the NCDs by way of which funds equivalent to at least two-quarters coupon payments will be kept as fixed deposits in a separate escrow account.

 

Further, the escrow Account will need to be funded with an amount equal to the relevant Coupon payment amount 2 (two) business days prior to the expected Coupon Payment Date. In case it is not funded, the Debenture Trustee would utilize the ISRA Fixed Deposit to make the Coupon Payment.

The Issuer will have to top up the ISRA so utilized within 3 (three) days from Coupon Payment Date for an amount equivalent to amount utilized. In case ISRA is not topped up within said period, it would lead to an Event of Default On occurrence of any event of default, again the asset sale event (as defined earlier) will be triggered and the NCDs and all secured obligations thereof will be redeemed as per the timelines stipulated by the T-structure indicated above.

 

Sensitivity to rating of underwriting commitment provider and non-adherence to the payment mechanism
The rating primarily reflects the strong credit risk profile of the underwriting commitment provider and the strength of the payment mechanism. Hence, any adverse changes in the credit profile of the underwriting commitment provider may result in a rating action on the NCDs. The rating will also be sensitive to non-adherence to the envisaged payment mechanism.

Liquidity: Superior

The above-rated NCDs have superior liquidity based on the transaction structure including the underwriting commitment (unconditional and irrevocable underwriting commitment from Axis Capital), which is expected to ensure timely repayment of debt obligations.

Outlook: Stable

The outlook is based on the 'Stable' outlook on the credit profile of the underwriting commitment provider Axis Capital. Any revision in CRISIL Ratings’ view on the credit profile or outlook of Axis Capital will result in a corresponding revision in the rating or outlook on the credit enhanced instrument issued by Sojo Infotel Private Limited.

Rating Sensitivity Factors

Downward factors

  • Downward revision in CRISIL Ratings’ view of credit risk profile of Axis Capital Limited by 1 or more notches
  • Non-adherence to the transaction structure

Adequacy of credit enhancement structure

Axis Capital has provided an underwriting commitment for the rated bonds of SIPL. A trustee monitored escrow account has also been opened for the issuance. This, along with the well-defined T structure ensures timely payment of interest and principal obligations. Even under stress case scenario, Axis Capital Limited, owing to its strong linkages with Axis Bank Limited, shall be able to honour the underwriting commitment.

Unsupported ratings: CRISIL BBB+

The credit rating of underlying company without factoring in the explicit credit enhancement or specified support considerations stands at ‘CRISIL BBB+’.

Key drivers for unsupported ratings

For arriving at the unsupported rating, CRISIL Ratings has consolidated the business and financial risk profiles of SIPL and Lava and all its subsidiaries, owing to common promoters and management and fungibility of cash flows. While SIPL itself has no cashflows, Lava’s stable cash accruals and adequate financial risk profile is a key driver of the ratings.

About the Company

Sojo Infotel India Ltd is a holding company floated by the promoters of the Lava Group to provide an exit to external investors of the main operating company in the group, Lava International Ltd (Lava). SIPL is 100% held by the promoters and has no operations. SIPL has raised NCDs of Rs 260 crore backed by underwriting commitment from Axis Capital and used the proceeds for infusing equity in Lava and for partial buyback of stake from external investors.

 

About the Underlying company (Lava)

Lava is a leading feature phone and entry level smart phone manufacturer with operations in India and multiple geographies abroad.  Started in 2009, the company has rapidly grown to be one of the main domestic phone manufacturers with healthy market share of ~ 20% in the low-end feature phones segment.

 

About Axis Capital

Axis Capital Limited (a Wholly Owned Subsidiary of Axis Bank) is a leading financial services company with expertise in providing focused and customized solutions in the areas of Investment Banking and Institutional Equities.  

Key Financial Indicators

As on/for the period ended March 31

Unit

2022*

2021*

Operating Income

Rs.Cr.

NM

NM

Adjusted Profit After Tax

Rs.Cr.

NM

NM

Adjusted PAT margins

%

NM

NM

Adjusted Debt/Adjusted Networth

Times

NM

NM

Interest coverage

Times

NM

NM

*Holding company with no operations

List of covenants

Annexure- Key Event of Defaults & Covenants

List of Event of Defaults
  • Failure to top-up ISRA in case of utilization;
  • In case the Merger / Capital Reduction / Buyback Event is not initiated as stipulated under the Covenants
  • Failure to pay any amounts due/fees to the Arranger;
  • Failure to pay any sum when due;
  • Breach of any covenant, undertaking, warranty or other obligations;
  • misrepresentation;
  • Failure to comply with any Financial Covenants and Conditions / negative covenants / conditions subsequent;
  • Issuer fails to comply with the objects of End Use;
  • Insolvency;
  • Enforcement proceedings and attachment; cessation of business;
  • Unlawfulness;
  • Repudiation;
  • Material adverse change;
  • Suspension / revocation / cancellation of any licenses / permits / leases necessary for carrying on the business ;
  • Events specific to the Security such as a default in the performance of or breach of any covenant under any Security documents or any Security document ceases to be or is not in full force and effect;
  • Failure to exercise Call Option;
  • Failure of Issuer to fund the escrow account on exercise of Call Option;
  • Failure to mandatorily redeem the Debentures upon occurrence of Mandatory Redemption Events within the agreed timelines.
  • Others as per the Issue Documentation

List of key covenants
  •    Underlying company to be rated at least [BBB-]
  •    ISRA to be topped up within 3 working days
  •    Adherence to stipulated merger/capital reduction/buyback timelines
  •    Net Financial Indebtedness of Lava on a consolidated basis shall not exceed Rs. 1360 Crs.
  • Net Financial indebtedness of Lava on a consolidated basis shall not exceed 3.5 times EBITDA.

 

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.Crs)

Complexity level

Rating Assigned with Outlook

INE0GS807011

Non-convertible debenture

25-Mar-21

8.48

25-Mar-24

200

Complex

CRISIL AAA (CE)/Stable

 

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Lava International Limited

Full

Group Company; business linkages
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
Non Convertible Debentures LT 200.0 CRISIL AAA (CE) /Stable 24-02-23 CRISIL AAA (CE) /Stable 28-02-22 CRISIL AAA (CE) /Stable 30-03-21 CRISIL AAA (CE) /Stable   -- --
      --   --   -- 01-02-21 Provisional CRISIL AAA (CE) /Stable   -- --
All amounts are in Rs.Cr.

  

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating instruments backed by guarantees
CRISILs Criteria for Consolidation

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