ICRA downgrades IFCI's credit ratings to BBB with negative outlook

Investment information company ICRA has downgraded credit ratings of government-owned specialised financial institution IFCI Limited from BBB+ to BBB with a negative outlook.

The move comes as IFCI prepares to garner about Rs 3,000 crore during the current fiscal by selling stake in the National Stock Exchange, Clearing Corporation of India and Stock Holding Corporation of India.

ICRA downgraded IFCI's fund-based bank limits, long-term bonds including subordinate debt and bonds/non-convertible debentures public issue from BBB+ to BBB and commercial paper programme from A3+ to A2+.

"The rating downgrade factors in the continued weakening of IFCI's capital position because of continued slippages and a deteriorating operating profile as the scheduled loan repayments were met by reducing the standard loan book, apart from recoveries from non-performing assets (NPAs) and divestments," said ICRA.

While the government had announced a capital infusion of Rs 200 crore, which is likely to be infused in the coming months, ICRA expects IFCI to continue breaching the minimum regulatory capital ratios despite the capital infusion and the reducing scale of operations, unless fresh capital is allocated to IFCI.

"The overall asset quality remains weak, largely because of slippages from the loans sanctioned prior to financial year 2018-2019. This, coupled with the declining tier I capital, led to further weakening in the solvency profile with a net stage 3 assets/tier I ratio of 579 per cent as on March 31, 2019, compared to 263 per cent as on March 31, 2018."

ICRA said the company has sought government approval for divestment of certain investments in its subsidiaries. The approval would not only improve the profitability (as these are carried as per book value), it would also improve the liquidity and capital ratios as the risk-weighted assets would decline.

Moreover, this would free up the capital locked in the subsidiaries. ICRA expects this to remain a key monitorable in the near term as it will address capital-related as well as liquidity issues. "However, in the absence of such approval, IFCI's capital dependence on the government will increase substantially."

While the company has been maintaining surplus liquidity of Rs 1,000 crore on a daily average basis, the same has been partly supported by a declining standard book.

Given its large repayment obligations and the inability to secure fresh lending during the last two years, the timely divestment of its stake in large core and non-core investments and its ability to secure fresh lending will remain critical for its liquidity and capital position, said ICRA.

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