India Infoline Finance to raise Rs 50 bn via non-convertible debentures

Icra flags high dependence on commercial paper

India Infoline Finance (IIFL) plans to issue non-convertible debentures (NCDs) worth Rs 50 billion, to raise money for the long term.

It has become important for finance companies to have long-tenor funds at hand to manage liquidity and also meet repayment obligations for short-term financial instruments.

Rating agency Icra has assigned a rating of ‘AA-stable’ for the NCDs. The agency has said the group (IIFL) has relatively high reliance on short-term commercial papers (34 per cent as on end-June). Its ability to generate enough liquidity to refinance its short-term borrowing in the current environment will have to be watched.

Icra has a rating of ‘A1-plus’ on the Rs80-billion commercial paper programme of the company.

Since September, there has been a considerable squeeze in the debt capital market. As a result, the ability of issuers (those issuing financial instruments) to find adequate refinance for short-term borrowing has been impacted, Icra said.

Its ratings take note of the significant pool of assets (Rs50 billion, as on end-September) the company has, which could be securitised and assigned to generate additional liquidity. In addition, it has adequate bank lines for meetig short-term payments.

The group has diversified business revenue, constituted by its financing, distribution and broking operations. It has robust risk management systems and a healthy capitalisation profile, said Icra. Backed by a net worth of Rs 554 million as on end-June.

Noting the company’s high growth in loan book over the past three years, Icra said a large part of this was yet to be tested for adverse economic cycles. The high growth in loans over the past two years (compounded annual rise of 37 per cent) has resulted in a moderately seasoned portfolio.

IIFL’s ability to maintain its asset quality across business cycles, while growing its portfolio amid intense competitive pressure, would be closely monitored by Icra. It would remain a key rating sensitivity, as the financing business has the largest share in group revenue (49 per cent for 2017-18).

The company had a diversified lending book, of Rs392.6 billion as on end-June. The mortgage segment accounted for 51 per cent of the portfolio. Followed (figures in percentage terms) by wealth finance (14), commercial vehicles (11), gold (11), medium to mirco enterprises (seven), capital markets (three) and micro finance (three).