-- Genpact Ltd. has a "fair" business risk profile and an
"intermediate" financial risk profile.
-- We are assigning our 'BB+' corporate credit rating to
Genpact, a U.S. listed business process outsourcing service
-- We are also assigning our 'BB+' rating to the company's
proposed $925 million senior secured bank loan.
-- The stable outlook reflects our expectation that the
company will sustain its operating performance and maintain
financial discipline despite a one-time large dividend payout.
SINGAPORE (Standard & Poor's) Aug. 7, 2012--Standard &
Poor's Ratings Services said today that it had assigned its
'BB+' long-term corporate credit rating to business process
outsourcing (BPO) service provider Genpact Ltd. The outlook is
At the same time, we assigned our 'BB+' issue rating to the
company's proposed $925 million senior secured bank loan
facility including $675 million seven-year term loan and $250
million five-year revolver credit facility. We also assigned our
recovery rating of '3' to the loan to indicate our expectation
of meaningful (50%-70%) recovery in the event of default.
The rating on the bank loan depends on our review of the
final issuance documentation.
"The rating on Genpact reflects the highly fragmented and
increasingly competitive BPO industry. It also reflects the
company's significant segment concentration and high exposure to
U.S.-based clients, whose outsourcing budgets and spending
remain uncertain," said Standard & Poor's credit analyst
Abhishek Dangra. "We also view the change in Genpact's financial
policies to increase its leverage in an asset-light industry as
a rating weakness. The company announced a large one-time
special dividend. Genpact's good market position in finance and
accounting services, higher value-added offerings, and stronger
EBITDA margins compared with most peers' moderate these
The intensifying competition in an already fragmented market
characterizes the BPO industry. Competition comes from both
domestic and international BPO service providers and larger
integrated information technology (IT) players with growing BPO
operations. Uncertainty surrounds outsourcing budgets and
spending, particularly in the key markets of the U.S. and
Europe, due to an economic slowdown and indirect effects of
fiscal tightening. Genpact derives over 70% of its revenues from
Genpact is exposed to high concentration in the banking,
financial services, and insurance (BFSI) vertical, which
accounts for about 48% of the company's revenues. We view
Genpact's client concentration risk as moderate despite the
company's top 10 clients (including General Electric Co.: GE;
AA+/Stable/A-1+) contributing more than 50% of its revenues.
This is based on diversified offerings to different entities of
GE, which together account for 30% of revenues.
In our view, Genpact has an "intermediate" financial risk
profile. We expect the company to strictly adhere to its
financial policies (of a net debt-to-EBITDA ratio of 2x) and
proposed financial covenants under the oversight of an
independent board. We also expect Genpact to restrict its
special dividend to 2012 as planned. We view Genpact's liquidity
is "adequate", as defined in our criteria.
Genpact benefits from it market position as one of the
leading players providing financial and accounting outsourcing
services. We believe the company's higher-value added offerings
across segments compared with peers is a competitive advantage.
"The stable outlook reflects our expectation that Genpact
will sustain its operating performance; generating about 20%
EBITDA margins," said Mr. Dangra. We also expect the company to
maintain financial discipline, despite a one-time large dividend
payout and potential mid-sized acquisitions.
We may lower the rating if the company's FFO-to-debt ratio
falls below 30% and the ratio of adjusted debt to EBITDA
increases to more than 2.75x. This may happen because of: (1)
Genpact following a more shareholder friendly financial policy
leading to further dividend payments or share buybacks; or (2)
the company's adjusted EBITDA margin dropping sharply to below
We believe an upgrade is unlikely over the next 12-18
months. Nevertheless, we may raise the rating if Genpact
significantly improves its scale of operations, increasing the
business diversity by reducing dependence on the BFSI vertical.
The company should sustain its margins and maintain its
financial ratios and financial policy in line with our current
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