Indiabulls Group shares slump after ratings downgrade

Indiabulls Group shares came under selling pressure after credit ratings firm Moody's revised the corporate family rating of Indiabulls Housing Finance to "Ba2" from "Ba1".

The announcement was made after market hours on Wednesday, 14 August 2019.

Meanwhile, the S&P BSE Sensex was down 197.83 points or 0.53% to 37,113.70.

Indiabulls Housing Finance (IBH) (down 8.62%), Indiabulls Integrated Services (down 5%), Indiabulls Ventures (down 3.08%) and Indiabulls Real Estate (down 0.31%) declined.

Moody's has also downgraded the company's foreign-currency senior secured rating to Ba2 from Ba1, foreign- and local- currency senior secured MTN program ratings to (P)Ba2 from (P)Ba1. The international rating agency has changed the outlook to negative from stable.

Moody's said that the downgrade reflects renewed pressure on the cost and availability of funds for IBH and certain other finance companies in India. This presents a more challenging external environment than Moody's had anticipated. The company's incremental cost of funding increased 45bps quarter-on-quarter ending June 2019, while the company's balance sheet declined by 7% over the same period. This rise in funding costs was a key driver for the 28bps decline in spreads in the same period, although profitability remains comparatively strong relative to its peer group.

"Liquid assets remain high, at around 24% of its balance sheet at end June 2019. This continues to be a key positive credit driver as it allows the company to be able to withstand some period of impaired access to funding. At the same time, the firm's progress in improving the quality of its liquid assets has been slower than what was anticipated by Moody's.", it said.

It further added that the downgrade also factors in deterioration seen in asset quality in the quarter ended June 2019, wherein stage 3 loans went up by 57% on a quarter-on-quarter (q-o-q) basis, albeit from a low base. Most of the increase in stage 3 loans has come from its corporate loan segment.

Last month, BJP Leader Subramanian Swamy sent a letter to PM Modi, accusing the group of Rs 1 lakh crore fraud. Swamy urged Prime Minister Narendra Modi to institute a Special Investigation Team of the Central Bureau of Investigation (CBI), Enforcement Directorate (ED), Serious Frauds Investigation Office (SFIO) and Income Tax (IT) officials to probe into the money laundering of the Indiabulls group by siphoning the funds of the National Housing Bank.

The Indiabulls Group is a diversified financial services group with interests in housing finance, consumer finance and personal wealth. The Group also has a presence in Real Estate, Pharmaceuticals, Lighting and Infrastructure & Construction Equipment Leasing.

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