ICRA revises the long term rating programme of Tata Tea

New Delhi, Dec 13 (UNI) The long term rating, outstanding against the Rs 100 crore debenture programme of Tata Tea Ltd (TTL) has been revised by ICRA from LAAA to LAA+, indicating high credit quality.

TTL's own share of the total investment stands at about Rs 8.23 billion, which is quite significant relative to the company's existing balance sheet size.

Additionally, TTL would invest Rs 216 crore to enable its subsidiary Tata Coffee Ltd (TCL) to acquire Eight O'clock Coffee Company, a retail coffee player in the US.

These investments, while enabling the company to strengthen its competitive position in the long term are in ICRA's opinion, likely to make TTL's profitability and debt protection metrics inconsistent with other LAAA rated entities.

The above rating, which was put under rating watch with developing implications in August 2006 has now been taken off, the rating watch as outlook on the long term rating is stable.

ICRA notes that the rated instrument is due for repayment in June 2007 and as such the rating action reflects the revision in long term credit protection indicators for the company.

Specifically, the rating action reflects the increased financial risk profile of the company following its plans to acquire, jointly with Tata Sons (TSL, rated LAAA by ICRA), a 30 per cent stake in the equity capital of the US based Energy Beverages Inc (EBI), commonly known as Glaceau at an investment of 677 million dollars.

The rating takes into account the company's position in the domestic packet tea market, growth achieved by its key brands, robust profitability from packet tea operations, comfortable standalone gearing, substantial investments.

Besides, its status as a leading company belonging to the Tata group has also being considered, which would be augmented further following a proposed increase in stake by TSL in the equity capital of TTL conferring on TTL a high degree of financial flexibility.

The rating also draws comfort from TTL's partial exit from plantation operations in South India, which has led to an improvement in the company's operating cost structure.

UNI SRS KR HS1752