Singapore, November 29, 2021 -- Moody's Investors Service has assigned a first-time B3 corporate
family rating (CFR) to ANI Technologies Pvt Ltd (Ola).
At the same time, Moody's has assigned a B3 rating to the
company's proposed senior secured term loan. Ola's
wholly owned subsidiaries -- Ola Netherlands B.V.
and Ola USA Inc. -- are the borrowers. The
loan is guaranteed by Ola and its subsidiaries engaged in ride-hailing
services.
The outlook is stable.
The proceeds from the term loan will be used for general corporate purposes.
RATINGS RATIONALE
"Ola's B3 CFR reflects its loss-making operations and
high execution risks associated with its international expansion plans
as well as its venture into India's competitive and fragmented food
delivery and vehicle commerce sectors," says Stephanie Cheong,
a Moody's Assistant Vice President and Analyst.
Ola, a leading ride-hailing company based in India,
has ambitions of expanding its presence in UK, Australia and New
Zealand, where it currently has small market shares. In these
markets, the company competes against ride-hailing incumbents
Uber and Didi, who have much larger scale and stronger balance sheets.
Given these factors, Moody's views the payoff from such expansion
to be uncertain and the company's intention to fund its evolving
business partially with debt as aggressive.
Moody's expects a high level of spending will be required to support
Ola's growth plans, such that the company's annual cash
burn (cash flow from operations less capital expenditures) will double
to $140 million for at least the next two years, from $73
million in the year ending 31 March 2021 (fiscal 2021).
Moreover, Ola's cash and cash equivalents of $279 million
as of 31 March 2021 will just cover the company's expected cash
burn and scheduled debt maturities through December 2022.
"As a result, the B3 rating is also premised on the successful
completion of Ola's term loan transaction as planned, which
will provide the required liquidity to sustain its operations beyond the
next 12 months, as well as execute its growth plans,"
says Cheong, who is Moody's Lead Analyst for Ola.
On the other hand, the ratings will likely face downward pressure
if the proposed transaction is delayed or if the funds raised are lower
than the company's target of $500 million, in the absence
of any alternative funding that shores up liquidity by year end.
Additional acquisitions or investment plans that further deplete liquidity
would also add negative ratings pressure.
The company is currently in the midst of completing a pre-IPO funding
round to raise equity from new and existing investors, and also
targets to complete a public listing by the first half of 2022.
However, the execution of its plans is subject to market conditions
and as such remains uncertain.
Somewhat offsetting these risks is Ola's leading share of above
50% in India's ride-hailing market and good long-term
growth prospects for the technology-driven sector. Moreover,
the company has generated consistent earnings from its Indian ride-hailing
business, which should continue to improve with increased mobility
as economies open up, and higher adoption of digital services accelerated
by the pandemic. However, operating profits from this segment
will only partially fund its various growth plans.
In addition, Ola has tax-related contingent liabilities in
India amounting to $160 million as of 31 March 2021. Given
the uncertainty of outcomes at this time, Moody's has not
adjusted the financial statements to reflect any potential liability.
However, Ola's liquidity would quickly deplete should these
liabilities crystalize.
Moody's also incorporates high governance risk given the unusually
high turnover at Ola's management level over the past few years,
which raises concerns around management credibility and its track record.
Governance risk is also high because of 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 largely
favor shareholders over creditors.
Moody's has also considered social risks arising from the societal impact
of Ola's disruptive technology. These include controversies
related to pushback from traditional taxi companies, worker strikes
and personal data breaches, which could increase regulatory scrutiny
on the sector, and overall, affect Ola's reputation
and disrupt its business.
The proposed loan will constitute majority of Ola's debt and is
therefore rated in line with the CFR of B3.
The stable outlook reflects Moody's expectation that although Ola's
cash burn will remain high over the next two years, it will have
sufficient cash, pro forma for loan proceeds, to fund operating
losses and cash investments for at least the next 2-3 years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade is unlikely over the next 12-18 months given the
company's loss-making operations and aggressive growth strategy.
Over time, the rating may be upgraded if Ola 1) successfully executes
its growth plans, gaining greater scale and business and geographic
diversity to better weather economic challenges or competitive threats;
and 2) materially and sustainably improves profitability; 3) and
maintains robust liquidity with sufficient cash or alternative liquidity
to cover its short- to medium-term debt and commitments.
The rating could be downgraded if Ola's proposed term loan transaction
is delayed or if the funds raised are lower than the company's target
of $500 million, in the absence of any alternative funding
that shores up liquidity by year end.
Moody's could also downgrade the ratings if (1) Ola's cash
balance falls toward $200 million; (2) the company has insufficient
liquidity to fund its operations and investments over at least the next
three years; (3) its cash burn increases beyond the rating agency's
current expectations; (4) increased competition or changes in regulations,
taxation or government policy weaken the company's market position,
cost profile or cash flow relative to the rating agency's current
expectations.
The principal methodology used in these ratings was Business and Consumer
Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
ANI Technologies Pvt Ltd (Ola) is a ride-hailing company based
in India. Ola operates predominantly in India, but has expanded
its ride-hailing operations to the United Kingdom, Australia
and New Zealand since 2018. In addition, the company has
food delivery, vehicle commerce and financial services businesses
in India, which are significantly smaller than the ride-hailing
segment, but complement and leverage Ola's ride-hailing
user base.
Ola was co-founded by Bhavish Aggarwal in December 2010,
and has raised more than $2.6 billion from investors.
Its top shareholders include SIMI Pacific Pte Ltd, a subsidiary
of Softbank, Tiger Global Management and Tencent.
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.
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Stephanie Cheong
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
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Client Service: 852 3551 3077
Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
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