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Indiabulls Calls A Truce After ICRA Reaffirms Rating But Downgrades Outlook

ICRA updates Indiabulls’ rating even as company withdraws court case against rating agency.

Labourers work on an Indiabulls Real Estate commercial building construction site in the Lower Parel area of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
Labourers work on an Indiabulls Real Estate commercial building construction site in the Lower Parel area of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

The rating committee of ICRA has reaffirmed the short term credit rating and outlook for Indiabulls Housing Finance Ltd. at A1+, even as the long term rating outlook for the mortgage financier has been downgraded to negative (from stable), bringing an end to the legal tussle between Indiabulls and rating agency ICRA Ltd. at the Delhi High Court.

Indiabulls Housing Finance, in a statement to the stock exchanges, said the re-affirmation of the short term credit rating is due to:

  • Its strong liquidity position and established track record in domestic mortgage finance industry.
  • Adequate capitalisation levels: Total Capital Adequacy ratio at 29.0 percent as on December 31, 2019.
  • Comfortable asset quality in retail loan portfolio.

Meanwhile, the revision in the long term rating outlook reflects the lender’s increased risk profile, the rating agency said in a statement to BloombergQuint drawing from its rating statement.

The revision in the outlook for the long-term rating reflects Indiabulls Housing Finance Limited’s (IBHFL) increased risk profile, given its investment in Yes Bank’s additional tier 1 (AT1) bonds and loans to companies belonging to the erstwhile promoters of the bank, and the continued challenges in resource mobilisation which are likely to intensify further, given the increase in risk aversion and the widening credit spreads in the market. It also factors in the likelihood of an increase in the company’s credit costs, while the recoveries during the quarter could partly offset the impact.
ICRA statement to BloombergQuint

However, the rating agency noted the company’s immediate term plans to raise sizeable equity capital and raise funds from divestment of non-core investments aggregating to approximately Rs. 10,000 crore, which, if materialised, is expected to significantly improve IBHFL’s access to funding and ability to absorb losses.

The ability to conclude the equity raise and divestments in a timely manner would be critical from a credit perspective, the agency said in its rating statement.

The rating update came on a day the Delhi High Court was to hear a case filed by Indiabulls against ICRA. The company had moved the high court seeking to restrain ICRA from downgrading its rating after the company could not provide certain details sought by rating agency. The inability to share information was attributed by Indiabulls to the lockdown as a result of Covid-19 pandemic. A rating downgrade would have a serious impact on the financial standing of the company and cause financial stress at this time, Indiabulls had argued. It cited a recent SEBI circular that relaxes guidelines applicable to rating assessments and default recognition. The lender had argued that a rating dowgrade would prompt debenture holders to seek immediate redemption.

By way of an interim relief, on April 3, the Delhi High Court had restrained ICRA from going public with its announcement on the revised credit rating of Indiabulls Housing Finance. The case was listed for hearing before the court today but after the rating update, Indiabulls Housing Finance withdrew its petition.

ICRA said it strictly adhered to its internal policies and all applicable SEBI regulations in assigning the rating, including following the appropriate appeal process, but made no mention of the court case in the rating statement.

ICRA had last downgraded Indiabulls’ rating in February 2020 on account of long-drawn challenges in resource mobilisation and deterioration in the asset quality of the commercial credit segment.

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