CARE downgrades IL&FS debt instruments, bank facilities

CARE Ratings has downgraded various debt instruments and bank facilities (aggregating ₹14,249 crore) of Infrastructure Leasing & Financial Services Limited . It cited build-up of liquidity pressure on the group due to delay in raising funds.

All the ratings continue to carry the 'credit watch with negative implications' tag on account of the group’s pursuit of a strategic plan to de-leverage the balance sheet by way of equity infusion, reduction of debt by refinancing the exposures in group companies and monetisation of certain identified (core as well as non-core) assets by end of FY19 (refers to period from April 1 to March 31).

Non-convertible debentures of ₹9641.94 crore has been downgraded from 'AA+' to 'BB'.

Debt instruments with 'AA' rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. Debt instruments with 'BB" rating are considered to have moderate risk of default regarding timely servicing of financial obligations.

The rating on Commercial Paper (CP) issue aggregating ₹2,500 crore has been steeply downgraded from 'A1+' to 'A4'.

Short-term debt Instruments with 'A1' rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.

Short-term debt Instruments with 'A4' rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default.

The credit rating on Redeemable Preference Shares aggregating ₹2,500 crore has been cut from 'AA' to 'BB-'. The rating on Long Term Bank Facilities aggregating ₹400 crore has been revised downwards from 'AA+' to 'BB'.

The rating on non-fund based bank facilities aggregating ₹200 crore has been lowered from ' AA+/A1+' to 'BB/A4'. In the case of subordinate debt of ₹6.85 crore, the rating has been cut from 'AA+' to 'BB'.

“IL&FS is in the process of raising equity capital of ₹4,500 crore by H1FY19 (refers to period from April 01 to September 30) by way of rights issue and additionally obtain lines of credit for ₹3,500 crore from its promoter entities for meeting near term liquidity needs and pursuing a deleveraging strategy involving asset sales at various group companies.

"However, lack of clarity on the fund infusion and impending sizeable repayment obligations in the near term due to elevated debt levels have significantly deteriorated the liquidity profile of the group," the agency said.

Deterioration in energy, engg verticals credit profile

Further, the rating revision also takes into consideration the weakening in the credit profile of its energy vertical (housed in IL&FS Energy Development Company Limited; IEDCL) and engineering vertical (housed in IL&FS Engineering and Construction Company Limited; IECCL) which has further weakened the financial risk profile of the group.

In August, the ratings of IL&FS were revised on account of build-up of company’s debt levels over a period of time on the back of increase in funding support to key subsidiaries and group companies, especially to its transport vertical (housed in IL&FS Transportation Networks Limited), whose standalone credit profile has witnessed significant deterioration in recent times, said the agency.

Although IL&FS has been maintaining its profitability through stake sale / divestments in its group entities, CARE Ratings observed that the actual realisation through sale of core assets has been slower than expected over a period resulting into moderation in the financial flexibility and corresponding increase in the debt levels.

The agency said the ratings continue to factor in IL&FS’s strong institutional ownership, experienced management and demonstrated track record and expertise in the infrastructure sector. IL&FS’s ability to maintain adequate capitalisation and leverage ratio with expected capital infusion and monetization of the assets through stake sale / exit while maintaining the profitability would be the key rating sensitivities.

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