Crisil Scales Down Tata Finance

Credit rating agency Crisil today downgraded the ratings assigned to Tata Finance Ltd's (TFL) non-convertible debenture (NCD) issues, its fixed deposit (FD) and commercial paper (CP) programmes and also removed them from rating watch. This is the third time in the last six months that the rating agency has taken an adverse rating action against the beleaguered company.

The rating assigned to TFL's Rs 260 crore NCD issue has been downgraded to 'BBB-' from 'A-'. The non-banking finance company's FD programme has been downgraded to 'FA-' from 'FA' while its Rs 100 crore CP programme has been downgraded to 'P3' from 'P2'.

 

The rating agency, in a press statement today said, the rating action reflects deterioration in the credit profile and financial flexibility of the company following recognition of large scale losses in TFL's books and consequently its severely impaired capital position. It added that TFL's business position has also weakened. TFL, in the year ended June 30 had reported a huge loss of Rs 396 crore.

However, the ratings in investment grade reflect the significant risk mitigation by way of the publicly affirmed (and demonstrated) liquidity support and proposed recapitalisation plan for TFL by the Tata group, Crisil said.

The ratings have been taken off rating watch following the finalisation of the group's plan with regard to TFL's exposure to Niskalp and associate companies.

In the absence of any exceptional strictures so far on the company by the regulators, Crisil expects that the group support available to TFL will enable it to service its debt obligations in a timely fashion.

The agency said it will review the ratings of TFL, should there be any adverse directives from the regulators to the finance company.

On July 27, the three financial instruments of TFL were put on rating watch with developing implications by Crisil following unauthorised financial transactions and sizeable losses in Niskalp Investments and Trading Company and certain other associate companies. TFL had, in addition to its equity holding in Niskalp, significant inter-corporate deposit (ICD) lending to Niskalp.

On September 7, Crisil downgraded the three financial instruments of TFL as its exposure to Niskalp through ICDs, which was in excess of the regulatory limits, had considerably constrained the company's capital adequacy.