Eros International PLC stock takes a beating in the face of second ratings downgrade

Eros International PLC (NYSE:EROS) stock took a beating Tuesday as credit ratings downgrades piled up reflecting “poor financial management” at the Indian entertainment giant.  

Last week, CARE cut Eros International’s long-term credit ratings to non-investment grade, or “junk” status, going from BBB- to D. 

Moody’s on Tuesday downgraded the firm’s corporate family rating to B2 from B1, also “junk” status, while changing the outlook to “negative” from “stable.”

“The rating downgrade reflects Eros PLC’s strained liquidity profile, which led to delays in servicing the bank loans of its Indian subsidiary, Eros International Media India Limited,” wrote Moody’s Senior Analyst Nidhi Dhruv.

Eros International stock closed 12% lower to $2.77 in New York on Tuesday but rose slightly in pre-market trade Wednesday.

READ: Eros International says it continues to meet all debt commitments as credit ratings downgrade bites

On June 6, Eros International PLC’s 62.4% owned Indian subsidiary, Eros International Media Ltd, confirmed there were delays in the payment of interest on its bank loans for April and May.

In a filing to the Indian stock exchanges, the company said it intended to clear the balances “within seven working days” to avert a default.

“Nonetheless, the delays in timely debt servicing exacerbates our concerns over the complex and multi-jurisdictional group structure, which has inhibited the timely movement of cash within the group entities,” wrote Dhruv, while noting that Eros International Media is the main operating subsidiary producing content.

Delays in debt servicing

Moody’s said delays in debt servicing reflect Eros PLC’s “poor financial management” and controls across the group, factors which are inconsistent with a B1 rating.

“Furthermore on 10 June, Eros Plc announced a share buyback plan for $20 million, signaling management’s preference to protect shareholders interests over the interests of creditors,” wrote Dhruv.

High working capital needs means Eros PLC’s liquidity is reliant on the refinancing of $72 million in short-term facilities, which management confirmed is still under discussion with a consortium of banks. The recent delays in servicing of debt could lead to difficulties in renewing these facilities.

CARE cut Eros PLC’s long-term loan ratings

On June 6, after ratings company CARE cut Eros International’s long-term loan ratings to “junk,” Eros issued a clarification regarding the downgrade assigned to Eros International Media.

“Eros International PLC and all of its subsidiaries have met and continue to meet all debt service commitments. The company retains the full faith and confidence of our lenders,” the company said in a statement.

Eros International PLC, together with its subsidiaries, co-produces and distributes Indian films in various formats worldwide. It was founded in 1977 and is based in Secaucus, New Jersey.

Contact Uttara Choudhury at [email protected]

Follow her on Twitter: @UttaraProactive 

Story by ProactiveInvestors