Moody's may upgrade PFC, IDBI, IFCI ratings

Moody's Investors Service today placed on review for upgrade the Ba1 foreign currency debt ratings of Power Finance Corporation (PFC) and Industrial Development Bank of India (IDBI) as well as the Ba1 issuer rating of IFCI Ltd.

The agency had last week placed India's Ba1 ceiling for foreign currency debt on review for possible upgrade to investment grade, citing India's rising forex reserves.

The ratings of these companies are currently all attached to the debt ceiling as they are closely linked to India's sovereign risk, given the government ownership of these financial institutions, Moody's said in a release from London.

Moody's has also confirmed the debt ratings of ICICI Bank at the current level of Baa3. ICICI Bank's rating had pierced the sovereign ceiling by a notch when it was upgraded earlier this year.

It added that the methodology for piercing the ceiling would not currently result in a further upgrade for ICICI Bank if, as a result of the current review, India's foreign currency debt ceiling were to be upgraded to investment grade.

It added that even as PFC's relatively healthy financial position justifies both the rating and the current review for upgrade, the same cannot be argued for the latter two institutions.

Both IDBI and IFCI have so far been rated in line with the sovereign debt ceiling based purely on external government support.

Without imputing any government support, the foreign currency debt ratings of these two institutions would have been much lower, considering their weak financial condition, Moody's said.

IDBI is in discussions with the finance ministry to raise $500 million through external commercial borrowings. If Moody's raise the foreign currency debt rating of IDBI, it would help the institution raise cheaper money overseas.

It added that the ratings of these institutions were placed on review for upgrade, bearing in mind the government's sensitivity to the timely repayment of foreign currency debt obligations of important Indian entities, the repeated support offered to IDBI and IFCI and the existence of foreign currency cross default clauses.

"While the rating agency continues to believe that the government is willing to support the foreign currency obligations of financial institutions, Moody's will review the timeliness of the likely support, especially in the case of the weakest institutions," the release said.