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Rating Action:

Moody's assigns Baa3 to Genpact's proposed senior unsecured notes

23 Mar 2021

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

No Related Data.
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