IFCI slips after CARE Ratings downgrades ratings of various instruments

IFCI fell 2.22% to Rs 11.43 after the credit ratings agency CARE Ratings downgraded its rating on various credit instrument so the company.

CARE Ratings has downgraded its rating on IFCI's long term bank facilities, long term instruments and subordinate bonds to CARE BB from CARE BBB-. It has also downgraded the rating on the company's long-term instruments - NCD to CARE BB+ from CARE BBB+. The ratings agency has maintained a 'negative' outlook on the aforementioned instruments.

CARE Ratings said that the revision in ratings assigned to the long-term bank facilities and non-convertible debentures (NCDs) of IFCI factors in sharp deterioration in the company's capitalization profile, worsening asset quality metrics with stage-3 assets constituting 80% of gross loan book as on 31 March 2021, high borrower-wise loan book concentration and persistently weak profitability metrics with IFCI reporting net loss of Rs 1,958 crore during FY21.

The downgrade in ratings is also underpinned by IFCI's stretched liquidity position having negative cumulative mismatches in more than six months bucket as per asset liability maturity (ALM) statement dated 31 March 2021. While IFCI has sufficient liquidity to meet its debt obligations in the short term, liquidity position going forward remains dependent on materialization of its divestment plans for its non-core assets including its investment in subsidiaries and a substantial equity infusion from the GOI in the near term.

The ratings also factor in the company's stance to pivot away from lending operations owing to high asset quality stress in its loan portfolio, and focus towards its advisory fee business.

The ratings however, continue to derive strength from majority ownership by Government of India (GoI) and diversified resource profile with weighted average cost of borrowings at 9.10% as on 31 March 2021. The ratings also factor in that IFCI has been mandated by GoI for managing various social and industrial upliftment schemes.

The outlook on the rating continues to be on 'negative' with continued weak asset quality and capitalization profile, stretched liquidity position with negative cumulative mismatches in the medium-term buckets, sustained loan book contraction and weak profitability metrics.

The outlook may be revised to 'stable' if IFCI is able to achieve resurgence in its loan book, improve its capitalization profile, improve the asset quality with sustainable reduction in its pace of slippages and inch up profitability metrics.

IFCI is the oldest development financial institution of India. It has been categorized as systemically important non-deposit taking non-banking financial company (NBFC-ND-SI) by the Reserve Bank of India in FY08. The company is engaged in providing corporate loans and project-specific loans to corporates. In addition, IFCI also invests in companies through equity, preference shares and debt instruments. GoI held 63.81% equity shares in IFCI as on 30 June 2021.

IFCI reported a consolidated net loss of Rs 701.65 crore in Q1 FY22 as against net loss of Rs 302.09 crore in Q1 FY21. Net sales declined 67.65% YoY to Rs 196.71 crore during the quarter.

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