Rating agencies keep close watch on Religare Enterprises

CARE lowers NCDs of Religare Finvest; parent firm withdraws from Icra ratings of commercial paper

Credit rating agencies have intensified scrutiny of Religare Enterprises following recent disclosures. While one of these agencies has downgraded an instrument of its lending arm, others are reviewing various instruments and bank debt of the group they have rated, in the light of latest developments.

On Wednesday, CARE Ratings said it downgraded ratings for non-convertible debentures (NCDs) of Religare Finvest from AA- to A citing corporate governance and disclosure issues.

"The revision in the rating of instruments of Religare Finvest Ltd (RFL) takes into account the corporate governance/disclosure issues as highlighted in the qualification/observations made by the auditor in the Audited Annual Report for FY17," CARE said in a press release.

Separately, Religare Enterprises in an exchange filing said it had withdrawn itself from ICRA's rating of its short term debt/ commercial paper saying, "The Company does not intend to use the same in near future."

Rating agencies allow such withdrawals provided there are no outstanding liabilities against the particular instrument, analysts said.

A Religare also spokesperson said that the ICRA ratings were surrendered voluntarily as there was no immediate utilisation. However, he did not comment on the downgrade.

An analyst with a rating agency said that it was reviewing the rated papers of various group entities. "If there was any action, we will issue a release," the analyst said.

The CARE report pointed out that auditors have raised concerns about internal financial controls of RFL based on the RBI inspection reports/letters pertaining to the corporate loan book and assignment transaction undertaken by the company.

"The ratings are further constrained by the slowdown in disbursements and de-growth of the loan portfolio, weak asset quality amid challenging competitive economic environment. The rating continues to factor in the support from the parent company Religare Enterprises Ltd (REL) through regular capital infusion, experienced management team, focus on secured lending (SME-LAP) and diversified resource base," CARE said in its report on RFL's NCDS.

The rating also took into account the plans of strategic sale of various core and non-core businesses at REL level "which is expected to reduce the corporate loan book and will be critical for the credit profile of the company."

The ratings are placed under "Credit Watch with developing implications" based on the Auditor's remarks expressing their inability to determine the potential impact of the corporate loan book on RFL in terms of penal provisions (if any), recoverability, impact on classification/reclassification in the financial statements and capital adequacy ratio etc. CARE is monitoring further developments with respect to these events and would take up the review of rating when more clarity emerges in these matters, it added.

Though Religare shares were under pressure in early trade on Thursday, they rallied towards the end of the day to finish with gains of 4.1% at Rs 107.95