IL&FS Financial Services’ Rs4,800 Crore NCD Downgraded to ‘BB’ on Debt Concerns
CARE Ratings has downgraded its rating on Rs4,800 crore non-convertible debentures (NCD) of IL&FS Financial Services Ltd (IFIN) to 'BB' from 'AA+' while keeping the ratings on credit watch with negative implications. Instruments with ‘BB’ rating are considered to have moderate risk of default regarding timely servicing of financial obligations, while those with ‘AA+’ are considered very low risk and with a high degree of safety for timely servicing of financial obligations.
 
"The revision in ratings assigned to debt instruments and bank facilities of IL&FS Financial Services due to significant deterioration in the liquidity profile of the company on impending debt servicing obligations in the near future and delay in funding support from the parent group on account of delay in fund raising plans. The rating revision also factors impairment of financial flexibility of the company as IFIN would not be able to access the commercial paper (CP) market for six-month period in line with compliance with the Reserve Bank Commercial Paper Directions, 2017,” the ratings agency says in a statement.
 
 
According to CARE Ratings, IFIN has been witnessing asset quality pressures for the last couple of years in sync with the stressed environment prevailing in the economy, especially in the infrastructure sector. 
 
 
During FY17-18, IFIN’s asset quality parameters saw deterioration on account of slippages in certain accounts as well as shift of non-performing asset (NPAs) recognition from 120 days past due (dpd) to 90 dpd norm. As on 31 March 2018, IFIN reported a gross NPA ratio (calculated on credit exposures) of 5.30% as against 3.30% and net NPA ratio of 3.49% compared with 2.36% a year earlier. 
 
The company’s net NPA to net worth ratio stood at 27.50% as on March 2018 compared with 14.84% same period last year. In addition to provisioning for NPAs, IFIN has been conservatively creating contingency provisions, which stood at Rs275 crore as on 31 March 2018 compared with Rs450 crore previous year, which covers about 52% of net NPAs, providing some comfort.
 
According to the ratings agency, there is deterioration in the financial risk profile of IFIN’s parent, Infrastructure Leasing and Financial Services Ltd (IL&FS) as well. It says, “The overall financial risk profile of the parent company-IL&FS has seen weakening on account of group’s elevated leverage levels and moderation in credit profile of key business verticals like energy vertical (housed in IL&FS Energy Development Co Ltd-IEDCL) and engineering vertical (housed in IL&FS Engineering and Construction Co Ltd-IECCL).” 
 
CARE Ratings had earlier downgraded the ratings of IEDCL to ‘CARE BB-; Credit watch with negative implications’ and IECCL to ‘CARE BB; Negative’.
 
Earlier, the ratings agency had revised its ratings on long term debt instruments and bank facilities of IFIN due to moderation in the financial risk profile of the company on account of continued deterioration in asset quality parameters with rise in slippages, weakening of profitability on account of higher provisioning and increase in leverage on account of significant increase in borrowing levels and continued increase in exposure to IL&FS group entities. 
 
The rating revision also factors in moderation in the credit profile of the parent company IL&FS and the group’s elevated leverage levels, CARE Ratings say.
 
CARE Ratings says its ratings downgrade also take into account that IFIN needs to comply with the regulatory requirement with respect to capital adequacy and group exposure norms by 31 March 2019, as prescribed by the Reserve Bank of India (RBI) in its inspection reports. “Considering the significant amount of exposure towards group entities vis-à-vis the company’s net owned funds (NOF), CARE believes that IFIN would require either significant capital infusion or off-loading exposure to its group entities to comply with the requirement within the time line,” it added.
 
The ratings continue to remain on ‘credit watch with negative implications’ on account of the IL&FS group’s pursuit of a strategic plan to de-leverage balance sheet by way of equity infusion, reduction of debt by refinancing the exposures in group companies and monetisation of certain identified (core as well as non-core) assets by end of FY18-19. 
 
“Given the heightened leverage levels and the immediate need to support the group entities,” CARE Ratings say, “Infusion of funds by means of equity capital and credit lines in a time bound manner would be critical; any delay would further exacerbate the company’s financial profile.” 
 
Meanwhile, the National Stock Exchange and the Bombay Stock Exchange had asked IL&FS Engineering and Construction, and IL&FS Transportation Networks to clarify on the ratings downgrade.

Both companies, however, informed the bourses that the news pertains to IL&FS Ltd, their promoter and not to the companies; hence they are unable to comment on it.
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COMMENTS

jaideep shirali

1 week ago

Every chain is as strong as its weakest link, in this case the rating agencies have failed the investors again miserably, thus raising doubts about the responsibility that credit rating agencies have towards investors. A downgrade of nine rating notches in one day makes one wonder if they are, put mildly, sleeping on the job. The rating agencies must be fined and in fact made to pay the losses investors may occur due to panic selling. SEBI should also focus more on the debt markets, one reason for the lack of liquidity is the danger of default, such incidents without suitable deterrent, would drive investors back to bank FDs.

V Ramesh

1 week ago

As I said earlier, the downgrade happened after , everybody, including my grandmother, knew there was a problem. The rating agencies have the highest EBIDTA of any sector, and they have absolutely no accountability.

Rupee falls further, now hits 72.35 per dollar
Continuing its slide, the Indian rupee touched another fresh low of 72.35 on Monday, weakening by 62 paise from its previous close of 71.73 per US dollar.
 
Around 10.30 a.m., the rupee traded at 72.32 per greenback. It had opened at 72.18 per dollar.
 
Along with decline in global currencies against the dollar and persistent trade tensions, a wider current account deficit of India also weighed on the rupee, analyst said.
 
India's current account deficit in April-June period stood at 2.4 per cent of gross domestic product (GDP), against 1.9 per cent of GDP in the January-March quarter of 2017-18, according to data released by the Reserve Bank of India on Friday.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Debt-laden IL&FS Calls Emergency Board Meeting for Raising Funds
Infrastructure Leasing & Financial Services (IL&FS), the an unlisted infrastructure behemoth with scores of complex subsidiaries, some of which are listed and a giant load of debt, has called an emergency meeting of its board of directors for raising funds. The financial services conglomerate, with around Rs1-lakh-crore public debt, is gasping for liquidity after failing to meet certain repayment obligations and triggering fears of loan recalls, says a report from Times of India.
 
"The emergency meeting is expected to convey the intensifying crisis at IL&FS to all the main shareholders and also possibly expedite a proposed Rs4,500-crore rights issue, which is scheduled for early November. On the positive side, all prominent shareholders - Life Insurance Corp of India (LIC), Orix of Japan, State Bank of India (SBI), Abu Dhabi Investment Authority and HDFC - have agreed in principle to participate in the rights issue," the report says. 
 
Other report from Business Standard says the board will take a call on fundraising, sale of assets, including road projects, and default by its subsidiary IL&FS Financial Services (IFIN) on commercial paper. 
 
Last month, IL&FS Financial Services has failed to meet its repayment obligations through a commercial paper. Due to this, Reserve Bank of India (RBI) barred the group company from raisng short-term funds through commercial paper route till 2019.
 
Ratings agencies have downgraded the debt of IL&FS Transportation Networks Ltdd and two other entities in the road sector are struggling to make payments on time. There are also reports about delayed salaries in its toll company and ILFS Environmental Infrastructure and Services Ltd. Several fund raising plans have also failed. 
 
As reported by Moneylife, IL&FS has reportedly defaulted on a short-term loan worth hundreds of crores from Small Industries Development Bank of India (SIDBI). According to our sources, IL&FS has defaulted in repaying a short-term loan of Rs1,000 crore to SIDBI. At the same time, a subsidiary of IL&FS too has defaulted in repaying loan worth about Rs500 crore to the development financial institution.
 
Defaulting on short-term loan commitment that too from an infrastructure development and finance company with pan-India presence, is very serious issue. Nothing of this sort has happened before, our source says.
 
Separately, last week, ratings agency ICRA has downgraded to 'D' from 'C' bank debt of Rapid Metrorail Gurgaon South Ltd (RMGSL) for not making interest payment for August 2018 on time. RMGSL is a special purpose vehicle (SPV) sponsored by IL&FS Rail Ltd (IRL) with 65.0% stake and IL&FS Transportation Networks Ltd (ITNL) with balance stake.
 
"The revision of RMGSL's rating takes into account the recent irregularities in debt servicing by the company. RMGSL has not paid the interest for the month of August 2018. The company's inability to generate sufficient revenues due to continued weak ridership on the project route had made it highly dependent on timely funding support from promoters. However, the promoter has not made available the required funds. As per the RMGSL's management, the company has represented to Haryana Urban Development Authority (HUDA) for claims due to breach of provisions of the Concession Agreement," ICRA has said.
 
Total cost of the project was funded by a combination of debt of Rs1,500 crore and equity. The entire term loan of Rs1,500 crore has been sanctioned by a consortium of five banks with Canara Bank as the lead bank and an external commercial borrowing (ECB) loan lender. The project achieved commercial operations on 31 March 2017.  
 
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