Moody’s Downgrades Indiabulls Housing Finance’s Ratings, Changes Outlook To Negative

Moody’s downgraded its rating for Indiabulls Housing Finance Ltd. on the back of renewed pressure on the cost and availability of funds for the housing finance company. It also changed its outlook on the housing financier from “stable” to “negative”.

The credit ratings agency on Wednesday downgraded three credit ratings it had assigned to Indiabulls Housing Finance:

• Long-Term Corporate Family Rating to Ba2 from Ba1
• Foreign-Currency Senior-Secured Rating to Ba2 from Ba1
• Local-Currency Senior-Secured Medium Term Note Program Rating to (P)Ba2 from (P)Ba1

Moody’s said that the company’s incremental cost of funding has increased by 45 basis points on a sequential basis between March 2019 and June 2019.

“This rise in funding costs was a key driver for the 28 basis points decline in spreads in the same period, although profitability remains comparatively strong relative to its peer group,” the credit ratings agency said in a statement.

The change in outlook reflects the possibility that tight funding conditions may persist for some time, further adding pressure on Indiabulls Housing Finance’s credit profile, particularly in terms of its profitability and asset quality.

In the quarter ended June 30, the housing financier witnessed a deterioration in its asset quality as Stage 3 loans or impaired loans grew 57 percent quarter-to-quarter, Moody’s said. Most of these impaired loans come from the company’s corporate loan segment, which is facing significant headwinds driven by a “combination of very tight refinancing conditions and weak borrower profiles”.

The ratings agency said that this segment will continue to be a key source of asset-quality risk for the company. Further downgrades of the financier could take place if the company’s balance sheet continues to “de-grow” due to the funding constraints.

Additionally, any large deterioration in the company’s asset quality or a reduction in the quantum and quality of liquid assets it currently holds would not bode well for its credit rating, Moody’s said.

The ratings agency, however, said that the company’s capital position has been growing strong alongside high retained earnings, which is a positive for the company. And if the proposed merger with The Lakshmi Vilas Bank Ltd. gets the regulatory approval, the ratings outlook could be changed to “stable”.

The company’s credit profile will improve if loan growth is sustained by achieving funding at competitive costs and garnering funding through institutional investors, Moody’s said.

On Wednesday, Indiabulls Housing Finance shares fell 3.90 percent to Rs 551.30 apiece on the BSE while the benchmark Sensex gained 0.96 percent to end the day at 37,311.53 points.