Fitch downgrades IREDA to BB+

Venkatesh Ganesh Mumbai | Updated on December 12, 2019

Fitch Ratings has given a negative rating to Indian Renewable Energy Development Agency (IREDA) and downgraded it to BB+.

We have affirmed IREDA’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) and its long-term senior unsecured rating at ‘BB+’. At the same time, Fitch has affirmed the Short-Term IDR and the short-term senior unsecured rating at ‘B’. Fitch classifies This basically classifies IREDA’s financial instruments as non investment-grade.

IREDA is a non-deposit accepting, non-banking financial company that is wholly owned by the central government and is registered with the Reserve Bank of India. Fitch classifies IREDA as a Government-Related Entities Rating (GRE) and assigns the company a weighted score of 30 under the GRE factor assessment. This results in the company being rated on a ‘top-down minus 1’ approach. Therefore, IREDA is rated one notch below the Indian sovereign’s long -term and local currency IDRs of ‘BBB-’.

Weak performance

According to Fitch, the reason for this downgrade had to do with a change in the outlook on IREDA’s standalone credit profile to negative. This was due to a weaker financial performance in the FY19and deterioration in the company’s debt-to-equity ratio.

The weaker performance was primarily due to increased finance costs and a ₹167 crore increase in the level of IREDA’s impairments on financial assets. The impairments were driven by IREDA’s adjustment to RBI’s decision to withdraw previous exemptions regarding the recognition of non-performing assets in FY19 and other non-recurring items, such as a ₹68.9 crore provision taken for IREDA’s investment in commercial paper issued by IL&FS.

This has put a stress on its finances. In 2018-19, IREDA reported profit of ₹244 crore, a 34 per cent dip when compared to ₹370 crore in 2017-18.

“Our assessment of IREDA’s standalone credit profile takes into account the company’s concentrated business model, moderate capitalisation against its higher risk appetite and greater exposure to potential asset-quality volatility in the Indian renewable-energy sector,” said Fitch.

Published on December 12, 2019

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