India Infoline Finance to raise Rs 50 bn via debentures for long-term funds

ICRA flags high dependence on commercial paper

India Infoline Finance Ltd (IIFL), plans to issue non-convertible debentures (NCDs) worth Rs 50 billion to raise long-term funds. It has become crucial for finance companies to have a long tenor fund at hand to manage liquidity and also meet repayment obligations for short-term financial instruments.

Rating agency ICRA assigned “AA” stable rating for NCDs.

In its commentary on the IIFL, the rating agency said the group (IIFL) has a relatively higher reliance on short-term commercial papers (34 per cent as on June 30, 2018). The ability of the group to generate enough liquidity to refinance its short term borrowings in the current operating environment will be a key monitorable. ICRA has an outstanding rating of “A1+” on Rs 80 billion commercial paper program of the company.

Since September 2018, there has been a considerable squeeze in the debt capital markets. As a result, the ability of issuers (those issuing financial instruments) to find adequate refinance for their short term borrowings has been impacted, ICRA said. 

The ratings take note of the significant pool of assets (about Rs 50 billion as on September 30, 2018) that company has which could be securitized and assigned to generate additional liquidity. In addition, it has adequate bank lines to address short term market repayments.

The IIFL group has diversified business revenues constituted by its financing, distribution and broking operations. It has robust risk management systems and healthy capitalisation profile backed by a strong consolidated net worth of Rs 554.2 million as on June 30, 2018, ICRA said.

ICRA said it believes IIFL group will continue to benefit from its diversified business profile, its demonstrated track record and its robust risk management systems.

Pointing out at the company’s high growth in the loan book over the past three years, ICRA said a large part of the loan book is yet to be tested for adverse economic cycles. The high growth in the loan book over the past two years (compounded annual growth rate of 37 per cent) has resulted in a moderately seasoned portfolio.

IIFL’s ability to maintain its asset quality across business cycles while growing its portfolio amidst intense competitive pressures would be closely monitored by ICRA. It would remain a key rating sensitivity as financing business has the largest share in group revenues (49 per cent for FY2018).

The company has a diversified lending book which stood at Rs 392.64 billion (including wealth finance book) as on June 30, 2018. The mortgage segment accounted for 51 per cent of the portfolio followed by wealth finance (14%), commercial vehicles (11%), gold (11%), MSME (7%), capital market1 (3%) and microfinance (3%).