Care Ratings has downgraded Patanjali Ayurved Limited’s (PAL) rating on account of it creating a special purpose vehicle for the purchase of Ruchi Soya and the loans and advances that the firm has given out to its various group entities.

The long-term facilities of PAL, co-founded by yoga guru and entrepreneur Baba Ramdev, have been downgraded from A+ to A-, while its short-term facilities will now carry a rating of A2+ from A1 earlier. Patanjali’s long-term/short-term fund-based bank facilities have been revised to A-/A2+ from A+/A1.

Patanjali’s bid to acquire Ruchi Soya has been cited by Care Ratings as the major reason for the downgrade. “The revision in the ratings of the bank facilities of Patanjali Ayurved Limited (PAL) take into account expected weakening of its financial risk profile on account of large outflow of funds from PAL to Patanjali Consortium Adhigrahan Private Limited (PCAPL; Special Purpose Vehicle created for the purpose of acquisition of Ruchi Soya Industries Limited (RSIL)),” it added.

The acquisition cost is likely to be Rs 4,350 crore against Patanjali’s net worth of Rs 2,873 crore as on March 31, 2019.

PAL, which is the biggest unit in the Patanjali group, has given substantial loans and advances to its various subsidiaries and if the RSIL acquisition goes through, a sizable load of the deal will have to be borne by PAL, and that prospect has contributed to Care Ratings assessment.

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“The revision also factors in PAL’s higher exposure by way of loans and advances/equity investments to the group entities. PAL continues to be the largest corporate entity in the Patanjali group and hence a sizable load of the RSIL acquisition (excluding debt from banks) will be borne by the PAL balance sheet,” it added.

Ratings downgrade for an FMCG firm is pretty rare and the action on Patanjali is another indication of the continued slowdown in the economy.

The Reserve Bank of India’s monetary policy committee on October 4 cut interest rates by 25 basis points while continuing with its "accommodative" stance from the last policy in its bid to revive the flagging economy.