In more troubles for the crippled IL&FS group, India Ratings on Tuesday downgraded the long-term issuer rating of a group company, IL&FS Environmental Infrastructure and Services (IEISL), and placed its ratings under watch. The agency has also downgraded the ratings of various debt instruments to ‘BB’.

Rival rating agency Icra had last month junked the ratings of most of the group companies. The downgrade by India Ratings reflects a similar rating action on its parent, IL&FS, following the default on repayment of commercial papers.

On Monday, IL&FS Financial Services defaulted on interest payments of commercial papers, which were due on that day. On September 14, IL&FS, which is unable to service most of its over Rs 91,000-crore debt, had defaulted on a Rs 105-core CP redemption.

“The recent developments at IL&FS will affect IEISL’s financial flexibility with regard to raising fresh equity and debt,” the rating agency said in a note. IL&FS holds 97.54 per cent stake in IEISL and has provided equity and debt to it, giving financial flexibility in terms of repayment of debt and interest.

The parent’s liquidity tightness poses challenges to IEISL in meeting its immediate debt liabilities, it said, adding the possibility of the roll-over of its borrowings has diminished significantly in the short term.

Although IL&FS plans to raise about Rs 8,000 crore in equity and debt, and monetise some assets, the timeliness of the debt and equity raising and proceeds from the divestment is critical, the rating agency said.

It said IL&FS would require immediate liquidity support to honour its debt obligations in a timely manner. IEISL also plans to raise equity of Rs 238 crore through a rights issue to part pay IL&FS’ debt.

IEISL is into the waste processing business and is of strategic importance to IL&FS to serve its social objectives.

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