IL&FS' loans, debentures lose 'AAA' rating status on elevated debt level

Infrastructure Leasing & Financial Services Limited (IL&FS) has lost the "AAA" rating for its non-convertible debentures (NCDs) and loans on elevated debt levels for the funding commitments towards group ventures.  

Ratings agency ICRA has cut the long-term rating for IL&FS instruments (NCDs and terms loans) to "AA+". It, however, reaffirmed the "A1+" rating for commercial papers. 

Both the ratings have been placed under 'watch with developing implications'. 

In its statement, ICRA said the revisions take into account the company's elevated debt levels owing to the funding commitments towards group ventures.    

While IL&FS has recognised opportunistic asset monetisation as a key strategic initiative, the actual progress on the same has hitherto been slow,  resulting in high gearing for the company. It has also led to a deterioration in the credit profile of key investee companies.

As on March 31, 2018, the company had a reported gearing of 3.04 times (on a stand-alone basis) and regulatory gearing of 2.30 times (reported gearing of 2.60 times and regulatory gearing of 2.23 times as on March 31, 2017, respectively).  

Additionally, the company has provided credit enhancement towards debt availed of by various group companies.    

The IL&FS group has also embarked upon steps for deleveraging its balance sheet and streamlining the portfolio. These include capital raise from the promoter group (equity through rights issue and additional lines of credit) and asset monetisation for unlocking the capital deployed towards various projects. Other steps include the upstreaming of cash flows through raising debt at the project level and a strategic realignment of the portfolio to move towards a capital-light model.

ICRA said the progress achieved by the company on these steps and the consequent impact on its financial profile would remain critical from a credit perspective.  

The extent of support extended by the company to group concerns through funds infusion, guarantees and other shortfall undertakings would constitute other ratings sensitive factors.

The ratings, however, continue to positively factor in IL&FS' long history of business operations in the infrastructure domain, strong brand name, track-record within this space and the domain expertise of its senior management.