Brookfield's equity infusion crucial for Indostar Capital in Q1 FY21: CARE

An equity infusion of Rs 1,225 crore by Brookfield Business Partners into Indostar Capital Finance Ltd (ICF) in first quarter of FY21 is crucial to ensure adequate liquidity when NBFC sector is facing challenges in resource mobilization after COVID outbreak.

Rating agency CARE has placed the ratings of Indostar Capital’s ted on credit watch with developing implications. The long-term debt carries “AA-“ rating.

Besides challenges faced by wholesale NBFC in particular, the credit costs (amount to be provided for stressed assets), are likely increase post outbreak of COVID 19. The said equity infusion would be critical for ICF as it would lead to further improvement in the liquidity position of ICF, CARE said in statement.

CARE takes note of resource mobilisation of over Rs 3,763.5 crore from various sources done by Indostar Capital Finance Limited from December 2018 to December 2019. However, in line with trend observed for the NBFC/HFC sector, ICFL has also witnessed increased cost of borrowings.

CARE will take a view on the ratings of ICF post completion of the said equity transaction along with the prevalent asset quality parameters and liquidity maintained during this tough operating environment.

The ratings of ICF primarily factor in strong institutional sponsors of ICF as well as their capital, operational and management support. The company has experienced management, good risk management processes. It has shown increasing proportion of retail advances and efforts to diversify into retail segments and has strong capitalization levels and comfortable gearing, comfortable asset quality parameters & liquidity position, CARE said.

Indostar in January 31, 2020, had said the overall investment was a combination of primary investment in equity shares and compulsorily convertible preference shares of Rs 1,225 crore. This was along with a secondary purchase of shares from IndoStar Capital Mauritius. Brookfield will also become a co-promoter in IndoStar and nominate two board members. Indostar Capital share closed almost flat at Rs 270 o per share on BSE.