Singapore, March 23, 2021 -- Moody's Investors Service has today assigned a Baa3 rating to the
proposed senior unsecured notes to be issued by Genpact Luxembourg S.a
r.l., a wholly-owned subsidiary of Genpact
Limited (Genpact, Baa3 stable).
The outlook on the rating is stable.
The notes are unconditionally guaranteed by Genpact. The company
will use the proceeds to repay its outstanding loans and for general corporate
purposes.
"Genpact's Baa3 ratings reflect the company's substantial
cash flows, prudent financial management and strong liquidity,"
says Sweta Patodia, a Moody's Analyst.
"The stable outlook reflects our expectation that Genpact will continue
to grow steadily while maintaining its current financial profile.
It also reflects our view that the company can continue to be rated at
Baa3 even if the sovereign rating were to be downgraded to Ba1,"
adds Patodia, who is also Moody's lead analyst for Genpact.
RATINGS RATIONALE
Moody's expects Genpact's revenues to continue growing on
the back of strong demand for IT services especially in a post-COVID
world.
Moody's estimates that Genpact's revenues will grow by 5.5%-6%
over the next 2-3 years, driven by organic as well as inorganic
growth opportunities. While rising employee costs will moderate
EBITDA margins, Moody's expects the company's margins
to remain around 18%-18.5% over the same period.
Given the company's high EBITDA to cash flow conversion, Moody's
expects this to translate to around $600 million in cash flows
each year, which will be sufficient to cover any outflows relating
to capital expenditure, acquisitions and shareholder payments.
Consequently, Genpact's leverage, as measured as adjusted
debt/EBITDA, will remain around 2.5x-2.8x over
the next 12-18 months, well within Moody's downgrade
trigger of 3.25x. At the same time, Moody's
expects Genpact's reported net debt/EBITDA (excluding operating leases)
to remain within its target of 2.0x over the same period.
Genpact's Baa3 rating reflects its growing revenue streams from
diversified industries with recurring cash flow and its commitment to
well-articulated financial policies. However, the
rating is constrained by the company's small scale.
In terms of environmental, social and governance (ESG) considerations,
Genpact remains exposed to various social risks, such as changes
in immigration laws and the availability of a skilled workforce,
which could result in increased employee costs and, in turn,
affect the company's EBITA margins.
Genpact is also exposed to governance-related risks because of
its acquisitive growth strategy and high shareholder payments.
However, tempering this risk to a large extent is the company's
listed status and oversight by its board of directors, the majority
of whom are independent.
Genpact has very strong liquidity. As of 31 December 2020,
the company had cash and cash equivalents of around $680 million
compared with short-term borrowings of around $284 million,
which mainly relate to the drawdown under its $500 million revolving
credit facility (RCF). The proposed bond issuance will strengthen
Genpact's liquidity position.
Moody's expects that proceeds from the proposed bond will be used
to repay the company's balance outstanding under its RCF and partially
repay the $350 million bond maturing in April 2022 such that the
increase in leverage due to the new bonds will be minimal.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward rating pressure could occur if the company grows its revenue to
around USD5 billion.
A shift in its business mix, where digital revenues account for
a higher portion of total revenues, and/or new contract wins with
higher margins that result in EBITA margins in the high teens, will
also be key for a higher rating.
Specific credit metrics that would support an upgrade include: (1)
adjusted debt/EBITDA falling below 1.5x-2.0x;
and (2) free cash flow/total debt exceeding 35%, on a sustained
basis.
Rating upgrade will also take into account Moody's assessment of
whether Genpact can be rated more than one notch above the sovereign.
Moody's could downgrade the rating if overly aggressive business acquisitions
or higher-than-expected shareholder distributions cause
gross adjusted leverage to exceed 3.25x and/or net leverage (on
a reported basis excluding operating leases) to exceed 2.0x on
a sustained basis. At the same time, any departure from the
company's current financial policies resulting in a weakening in Genpact's
financial profile or liquidity position would also strain the rating.
The principal methodology used in this rating was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Genpact Limited is a Bermuda-incorporated company that provides
business process management, as well as analytics and technology
services, for the banking, financial services and insurance,
manufacturing, pharmaceuticals, medical equipment, technology
and healthcare sectors.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating
and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social and
governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed by
Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main
60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's office
that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed by
Moody's Investors Service Limited, One Canada Square, Canary
Wharf, London E14 5FA under the law applicable to credit rating
agencies in the UK. Further information on the UK endorsement status
and on the Moody's office that issued the credit rating is available on
www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Sweta Patodia
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
