Fitch Publishes India Infoline's First-Time Rating of 'BB-'; Outlook Stable

  • Reuters
  • Stock Market News
Fitch Publishes India Infoline's First-Time Rating of 'BB-'; Outlook Stable
Credit: © Reuters.

(The following statement was released by the rating agency) Fitch Ratings-Taipei/Shanghai-January 28: Fitch Ratings has published India Infoline Finance Limited's (IIFL) Long-Term Issuer Default Rating (IDR) of 'BB-'. The Outlook is Stable. Fitch has also assigned a 'BB-' rating to IIFL's USD1 billion medium-term note (MTN) programme. IIFL is a non-deposit accepting non-bank financial company (NBFC) in India that provides diversified credit facilities to individuals and companies that are underserved by banks. It operates under the flagship of IIFL Finance Limited (formerly IIFL Holdings (NS: IIFL ) Limited) and will become a listed entity after merging with IIFL Finance, pending regulatory approval. IIFL set up a senior secured MTN programme of USD1 billion in August 2019 and plans to issue US dollar notes under it. The notes issued under the programme are secured obligations of IIFL at all times ranking pari passu and without any preference among themselves. The notes will be secured with property that includes all present and future receivables/assets of the issuer, but excludes all fixed deposits and other assets notified by the issuer to the security trustee. The notes are also subject to maintenance based covenants that require IIFL and its principal subsidiaries to meet regulatory capital requirements and maintain net non-performing asset (NNPA) ratio equal to or less than 5% at all times. IIFL is also required to maintain the security coverage ratio at a level equal or greater to 1.0 at all times. The programme is listed on Singapore Exchange with the net proceeds of the notes to be used for on-lending and to support the company's business growth in accordance with the guidance of External Commercial Borrowings (ECB). The programme's rating reflects the ratings that are expected to be assigned to senior notes issued under the programme. Key Rating Drivers LONG-TERM IDR IIFL's Long-Term IDR is driven by its standalone credit profile. The rating is underpinned by IIFL's moderate franchise in India's NBFC sector and experienced management team, but is offset by its reliance on wholesale funding, appetite for high growth and tolerance for elevated leverage. The rating also takes into account our expectation of pressure on IIFL's asset quality and ongoing funding challenges, which has led the company to reduce its balance sheet and shift its funding structure. Fitch has a negative sector outlook on Indian NBFIs, reflecting the asset quality and funding challenges faced by the sector. Fitch regards the company's profile as its key rating driver. The company has moderate market positions in several niche segments, including affordable home, business and gold loans. It has been reducing its exposure to developer and construction finance. Its diversified product lines are offset by its small size that limits its pricing power and shorter operating record compared with that of higher-rated peers. IIFL, as a non-deposit accepting NBFC, is reliant on wholesale funding. In the wake of India's system-wide funding stress since September 2018, IIFL's funding sources have evolved towards longer-term funding and secured funding in the form of securitisation while reducing its reliance on short-term commercial paper. Developing an over-reliance on securitisation could reduce the company's financial flexibility and have a negative impact on the funding profile. The more challenging operating environment also weighed on the company's growth and financial performance for the first nine months of the financial year that ends March 2020, and we believe this will continue in the short term. The difficult funding conditions have led to a decline in IIFL's on-balance-sheet assets although in recent months loan growth has resumed. Profitability has, as a result, weakened from the previous years in light of the rising funding costs. We therefore expect full-year profit to be marginally weaker than the previous year. Gross impaired lending has been on the rise and was at 2.3% of loans at end-December 2019, reflecting the asset quality deterioration and a lower loan book. We expect asset quality to remain under pressure as the operating environment remains challenging, although IIFL has acceptable risk management, with asset-quality risk managed through conservative provisioning practices and an emphasis on collections. In addition, the company's aggressive plan in expanding retail loans could pressure its risk-management infrastructure and may lead to asset-quality issues. Leverage, measured by debt/tangible equity, came down to close to 5x by end-December 2019 due to the shrinking balance sheet, driven by tight market liquidity. Fitch estimates the leverage will increase to around 6x after a planned bond issuance on a pro forma basis and will rise further as loan growth resumes. The current leverage is below the 7x level that management can tolerate before considering additional equity. IIFL's core management team has around 20 years of financial sector experience with an acceptable degree of credibility and competence relative to its size and business nature. The founding shareholder is closely engaged in the business and has strong influence over the company's direction and strategy. However, Fitch believes key-man governance risk is counterbalanced by the presence of two key institutional shareholders. Execution has generally been in line with management's expectations, but its record is short compared with that of some larger peers. Senior Secured Debt The MTN programme is rated at the same level as IIFL's Long-Term IDR in accordance with Fitch's rating criteria. Most of IIFL's debt is secured and Fitch considers that non-payment of the company's senior secured debt would best reflect uncured failure. IIFL can issue unsecured debt in the overseas market, but such debt is likely to constitute a small portion of its funding and thus cannot be viewed as its primary financial obligation. RATING SENSITIVITIES LONG-TERM IDR Positive rating action could be triggered if the company strengthens its franchise and market positions on a sustained basis, combined with a longer record in its niche segments that leads to a significantly stronger company profile. In addition, leverage, measured by debt/tangible equity, would need to move towards 5x combined with a lower growth appetite and improving asset quality. Greater diversification and a lengthening of the funding profile on a sustained basis would also be positive for the rating. Negative rating action could be triggered by higher leverage towards 7x, a less diverse shorter-term funding structure or meaningfully increased reliance on secured debt against specific assets that reduces financial flexibility, and an increasing risk appetite as evidenced by aggressive expansion beyond Fitch's expectation and looser underwriting standards. A rapid deterioration in asset quality would also weigh on the rating, as would a weaker company franchise and market position. Senior Secured Debt The MTN rating will move in tandem with IIFL's Long-Term IDR. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg. India Infoline Finance Limited; Long Term Issuer Default Rating; Publish; BB-; RO:Sta ----senior secured; Long Term Rating; New Rating; BB- Contacts: Primary Rating Analyst Katie Chen, Director +886 2 8175 7614 Fitch Australia Pty Ltd, Taiwan Branch Level 37 TAIPEI NANSHAN PLAZA, No. 100, Songren Road, Xinyi District Taipei 110 Secondary Rating Analyst Carol Liu, Associate Director +86 21 6898 8001 Committee Chairperson Mark Young, Managing Director +44 20 3530 1318

Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com; Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country-Specific Treatment of Recovery Ratings Criteria (pub. 18 Jan 2019) https://www.fitchratings.com/site/re/10058988 Non-Bank Financial Institutions Rating Criteria (pub. 12 Oct 2018) https://www.fitchratings.com/site/re/10044407 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10108515 Solicitation Status https://www.fitchratings.com/site/pr/10108515#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2020 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see https://www.fitchratings.com/site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100

Related Articles