Image courtesy: IL&FS Annual Report

IL&FS Loses Investment Grade Status After ICRA Rating Cut

Infrastructure conglomerate Infrastructure Leasing and Financial Services (IL&FS) lost its investment grade rating after ICRA downgraded its debt by several notches in one go.

This is the second time the organisation’s ratings have been cut in the course of a month. IL&FS has gone from the highest rating grade of AAA to now junk-grade, as debt and liquidity pressures have built up within the organisation. On Saturday, BloombergQuint reported that the RBI has initiated a special audit of IL&FS after it defaulted on inter-corporate deposits of SIDBI.

In a release on Saturday, ICRA cut the rating on Rs 5225 crore in non-convertible debentures and Rs 350 crore in loans of IL&FS to BB from AA+. The rating on the company’s commercial paper program has also been cut. Both ratings remain under ‘ratings watch’, ICRA said.

The downgrade of ratings takes into account the increase in liquidity pressure at the group level. While the company is in the process to raise Rs 8000 crore of funds from the promoter group (through a rights issue and a long term line of credit), timely receipt of the same is important to improve the group’s liquidity profile.
ICRA Ratings Release

Also read: BQ Exclusive: RBI Initiates Special Audit Of IL&FS After Delay In Repaying Inter-Corporate Deposits

In a separate release, ICRA said that it has downgraded Rs 4000 crore in commercial paper of IL&FS Financial Services - a subsidiary of IL&FS. The rating for these instruments has been cut to ‘A4’ from ‘A1 plus’.

“The rating revision is driven by the material weakening of the company’s liquidity profile in light of the sizeable debt servicing obligations coupled with the diminishing expectation of funding support from the promoter, namely, IL&FS,” said ICRA in its release.

IL&FS is in the process of monetising assets but progress has been slow. It is also trying to conclude a rights issue and secure a line of credit from its shareholders. LIC, with a 25.34 percent stake in IL&FS, is the largest shareholder in the company. Orix Corporate, Japan with a 23.54 percent stake is the second largest shareholder. SBI holds 6.42 percent stake.

Also read: The Rise And Stumble Of IL&FS