ICRA downgrades loan, debenture rating of IL&FS to 'default risk'

Rating agency ICRA Sunday downgraded loan and debentures of infrastructure financing firm IL&FS to 'default risk' citing liquidity pressure on the group on the back of sizeable repayment obligations.

The ratings of Infrastructure Leasing & Financial Services Limited (IL&FS), which has reportedly defaulted on payment, is kept under "under rating watch with developing implications.

The long-term rating of IL&FS' Rs 5,225 crore non-convertible debenture programme and the Rs 350 crore term loans has been cut to 'BB' from 'AA+'.

Also the short-term rating for the Rs 2,500 crore commercial paper programme of IL&FS has been lowered to 'A4' from 'A1+'.

Instruments with 'BB' rating are considered to have moderate risk of default regarding timely servicing of financial obligations. 'A4' rating implies high credit risk and are susceptible to default.

"The liquidity profile of the IL&FS Group is currently stretched given the sizeable repayment obligations at group level in the near term and deterioration in credit profile of key investee companies," ICRA said in a statement.

The downgrade of ratings takes into account the increase in liquidity pressure at the group level, it said.

"While the company is in the process to raise Rs 8,000 crore of funds from the promoter group, timely receipt of the same is important to improve the group's overall liquidity profile. Further clarity is awaited on the timing of these inflows and given the sizeable repayment obligations of the group's debt, this remains a key rating sensitivity in the near term," ICRA said.

The ratings also consider the company's elevated debt levels owing to the funding commitments towards Group ventures coupled with slow progress on asset monetisation and deterioration in credit profile of key investee companies.

As on March 31, 2018, Life Insurance Corporation of India (LIC) and ORIX Corporation Japan were the largest shareholders in IL&FS with 25.34 per cent and 23.54 per cent stake respectively. Abu Dhabi Investment Authority (ADIA), HDFC, Cental Bank of India and SBI hold 12.56 per cent, 9.02 per cent, 7.67 per cent and 6.42 per cent, respectively, according to ICRA.

Further, ICRA has also downgraded the short term rating for the Rs 4,000 crore commercial paper programme of IL&FS Financial Services, a subsidiary of IL&FS, to 'A4' from 'A1+'.

"The rating revision is driven by the material weakening of the company's liquidity profile in light of the sizeable debt servicing obligations coupled with the diminishing expectation of funding support from the promoter, namely, IL&FS," ICRA said.