Rating agency Icra has revised the outlook on IFCI's long-term bonds and bank borrowings from stable to negative. It, however, affirmed their rating at A.
The move follows an increase in slippages and restructured assets and a rise in vulnerability of the company's credit portfolio of promoter funding.
Icra, however, revised the rating for the commercial paper from A1+ to A+.
Vulnerability of the Delhi-based finance company's portfolio has increased, owing to subdued capital market conditions, regulatory concerns, high interest rates and fuel supply woes faced by power projects funded by it. Icra said it was vital for IFCI to reduce the vulnerability of its portfolio to maintain its credit rating. This could be achieved through a reduction in the size of the portfolio and improvement in capital market conditions, it added.
IFCI's dependence on capital market condition remains high. Two-fifths of its credit portfolio is accounted for by promoter funding.
Icra acknowledged the decline in IFCI's promoter funding portfolio — from Rs 7,040 crore (44 per cent of the total credit portfolio) in March 2011 to Rs 5,890 crore (39 per cent of the total credit portfolio) in June 2012, and the management's intention to reduce the portfolio.
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In 2011-12, IFCI's asset quality indicators deteriorated, owing to fresh slippages increasing to Rs 377 crore (2.6 per cent of opening credit portfolio) from Rs 101 crore (one per cent of opening credit portfolio) in 2010-11. The company's restructured and rescheduled loans accounted for about six per cent of its credit portfolio in 2011-12.
IFCI's ratings are supported by the company's diversified borrowings, adequate profitability and capitalisation profile, comfortable liquidity and moderate business risk profile. As on March 31, at 21.26 per cent, IFCI's regulatory capital adequacy was comfortable, while at 5.11 times, the leverage was moderate. Also, moderate internal capital generation and sizeable unrealised gains on a few strategic investments provide cushion to debt holders.