Credit rating agencies might downgrade pass-through certificates (PTCs) issued by non-banking finance companies (NBFCs) and real estate sector further in 2009.
According to a Fitch report on Indian Structured Finance, rating actions taken up to January 31 showed that 36 PTCs have been downgraded following Fitch’s downgrade of four corporate entities – DLF, Unitech, Sobha Developers and Shoppers Stop.
“Fitch has rated 237 single loan sale down (SLSDs) to date, of which 158 SLSD ratings are still outstanding and 122 PTCs have maintained their initial rating. These outstanding ratings are linked to 21 corporates and NBFCs in the industry classifications shown in the chart based on issuance volumes. SLSDs are essentially securitisations of single corporate or NBFC loans. The rating of PTCs in SLSD transactions is therefore credit-linked to Fitch’s public rating o internal credit view of the underlying corporate or NBFC,” the report said.
For the NBFC sector, the report indicated stress on client cash flows and declining asset values likely to have an adverse impact on the asset quality of Fitch-rated entities in the next 12-18 months.
“On the liability side weaknesses (source concentration, tenor and interest rate mismatch) remain and reliance on wholesale short-term funding has increased given the quantum and cost limitations of long-term funding. This created refinancing problems in October/November 2008 when tight liquidity conditions made it difficult to roll over short-term loans,” the report said.
The outlook for the realty sector remains negative as the fundamental of the industry have deteriorated due to the volatile external environment.
“Weak economic/consumer sentiments, high interest rates, affordability concerns and rising construction costs is the reason behind the sector witnessing significant slowdown in demand over the past 12 months,” Fitch said.
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However, the rating agency maintained a stable outlook for the asset-backed finance segment which includes loans given to finance commercial vehicles (CV), passenger cars, two-wheelers, consumer durables and personal loans.
Twenty four asset-backed transactions were rated outstanding, of the 51 that Fitch has rated to date.
“CV is an asset class that has seen significant demand in the past few years, largely driven by the high GDP growth. In the second half of 2008, the slowdown in the economy led to lower levels of demand for CV. In its December 2008 policy announcement, the Reserve bank of India has tried to stimulate demand for CV by allowing borrowers to accelerate the level of depreciation of the vehicle to 50 per cent in the first year of purchase,” the report said.