Stephanie Cheong, Assistant Vice President and Analyst, Moody’s Investor Service, said, “Ola’s B3 CFR is associated with high performance risks associated with its loss-making operations and its international expansion plans and its venture into India’s competitive and fragmented food delivery and vehicle commerce segments. Shows.” in a statement. Ola’s wholly owned subsidiaries, Ola Netherlands BV and Ola USA Inc., are the borrowers. The loan is guaranteed by Ola and its subsidiaries engaged in ride-hailing services, the statement said.
Outlook is stable. The term loan will be used for general corporate purposes.
Ola aims to expand its presence in the United Kingdom, Australia and New Zealand, where it currently has a small market share. In these markets, the firm competes against ride-hailing incumbents Uber Technologies Inc. and Didi Global, which have very large scales and strong balance sheets.
Given these factors, Moody’s said it considers the payoff from such an extension uncertain and the company intends to aggressively fund its growing business, partly with debt.
Moody’s expects a higher level of spending to be required to support Ola’s upcoming growth plans, such as doubling the company’s annual cash burn from $73 million in FY11 to $140 million for at least the next two years. Will be done. In addition, Ola’s cash and cash equivalents of $279 million as of March 31, 2021, will cover the company’s expected cash burn and scheduled debt maturities by December 2022, the statement read.
Startup Rockstar in 2021
Sign in to see our list of the Most Promising Startups of 2021
“As a result, the B3 rating is also based on the successful completion of Ola’s term loan transactions as planned, which will provide the necessary liquidity to sustain operations over the next 12 months, as well as execute its growth plans,” said Cheong. , who is Moody’s principal analyst for Ola, said.
On the other hand, if the proposed transaction is delayed or if the funds raised fall short of the company’s target of $500 million, in the absence of any alternative funding that would increase liquidity by the end of the year, the ratings will be downgraded. The downward pressure will have to be faced. Note the statement. It added that additional acquisitions or investment plans that further infuse liquidity would also add to negative rating pressure.
Governance risk is also high due to Ola’s status as a privately-owned company and the company’s ownership by a consortium of financial investors, who are likely to employ financial strategies that benefit large-scale shareholders, the statement said. in favor of the creditors, the statement said.
The proposed loan will constitute the majority of Ola’s debt and hence is rated at B3’s CFR. The stable outlook reflects Moody’s expectation that though Ola’s cash burn will remain high over the next two years, it will have enough cash to cover operating losses and cash investments for at least 2-3 years, pro forma for debt earnings. Will happen.
A rating upgrade is unlikely in the next 12-18 months, given the company’s loss-making operations and aggressive growth strategy.
Moody’s said that over time, the rating could be upgraded if Ola successfully executes its growth plans, achieves greater scale and business and geographic diversity for economic challenges or competitive threats, both physically and sustainably. improve profitability, and maintain strong liquidity with sufficient liquidity or alternative liquidity. To cover your short- to medium-term loans and commitments.