India Ratings and Research (Ind-Ra) has placed Shriram Transport Finance Company Ltd’s (STFC) long-term issuer rating of ‘AA+’ on Rating Watch Negative (RWN). The outlook of the rating is “Stable”.
Per the rating scale, 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.
The RWN reflects limited near-term visibility on the impact of the measures taken by the authorities to contain the spread of the pandemic on STFC’s asset quality and credit costs, the credit rating agency said in a statement.
Ind-Ra believes the loss of income over an extended timeframe because of the lockdown will have a detrimental impact on the borrowers’ cash flows and disrupt collections of non-banking finance companies (NBFCs), while increasing the credit risk significantly, given the borrowers’ weak profiles.
This, along with a likely sharp slowdown in the economic activity ( FY21 GDP forecast revised to 1.9per centfrom 5.5per cent) , it could considerably elevate softer-bucket delinquencies and higher transition of softer buckets to stage-3 delinquencies, it added.
Tightening market conditions
The agency also remains cautious over the tightening market conditions, which could impact funding sources.
“STFC’s domestic borrowing spreads have been higher than the historical average since the onset of the liquidity crisis for NBFCs in September 2018.
“The agency believes that while STFC navigated the tough liquidity conditions by augmenting new channels of funding (foreign currency borrowing), any incremental funding from domestic mutual funds and foreign sources could face challenges amid the uncertainty in the global economic scenario and domestic credit markets, and further increase funding costs,” the statement said.
The debt that has been placed on RWN are: NCDs (aggregating ₹34,500 crore), bank loans (₹13,000 crore), subordinated debt (₹66,200 crore) and term deposits.
The rating on the short-term debt/ commercial paper programme (₹75,000 crore) has been affirmed at ‘A1+’. Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk.