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The stock of Srei Infrastructure Finance Ltd (SIFL) took a beating on the bourses in Monday’s trade in the backdrop of the Reserve Bank of India (RBI) engaging an auditor to conduct a special audit of the company and its subsidiary Srei Equipment Finance Ltd (SEFL).
Further, Brickwork Ratings (BWR) has downgraded the long-term ratings on the innovative perpetual debt instrument (IDPI) issue of SREI to ‘BB’ from ‘BBB-’ while placing the ratings under credit watch with negative implications.
Also read: Srei explores merger with bank if RBI policy permits
In intraday trades so far, the stock of SIFL tested a low of ₹5.66 apiece, down 15.64 per cent over the previous close on the BSE. Its intraday high so far is ₹6.53 apiece. Currently, the stock is trading at ₹5.91, down 11.92 per cent.
Rationale for downgrade
BWR said the rating downgrade on SIFL’s IPDI is mainly driven by the continued stress on asset quality in the equipment and infrastructure financing loan portfolios, significant decline in profitability and stretched liquidity position of the company on account of low collections.
“This, coupled with a decreasing asset base, average capitalisation with continued high gearing levels and the challenging operating environment for non-banking financial companies (NBFCs), has impacted SEFL’s overall credit risk profile,” its added.
BWR has also taken note that the company has restructured the coupon payments of perpetual debt instruments by taking the consent of the investors prior to the due date in line with RBI guidelines.
Also read: Focus on survival and stability this year, look for growth in the next: Srei Infra chief
The credit agency, in a statement, said the ratings are placed under “Credit watch with negative implications” considering the expected asset liability management (ALM) mismatch arising due to a one-time restructuring (OTR) being made available to SEFL’s borrowers and the resultant adverse impact on SEFL’s liquidity and debt servicing capability.
Further, the company’s earnings profile is susceptible to high credit costs, as it is yet to provide for the impact of Covid-19 as per RBI guidelines, the agency added.
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