The extension of the review for downgrade takes into account the still-considerable uncertainty regarding the impact of the pandemic-driven economic disruption on IIFL Finance's loan collections and the asset quality.
Moody’s Investors Service on Friday extended its review for downgrade on IIFL Finance’s B1 corporate family rating (CFR), (P)B1 senior secured MTN program rating and B1 senior secured debt rating. The extension of the review for downgrade takes into account the still-considerable uncertainty regarding the impact of the pandemic-driven economic disruption on IIFL Finance’s loan collections and the asset quality.
The data from Bloomberg show that IIFL Finance had a loan of Rs 27,274 crore as on March 2020. “The extension of the review also recognizes that IIFL Finance’s liquidity profile has remained stable as the company has slowed loan disbursements to match the decline in loan collections. 31% of IIFL Finance’s loans were under repayment moratoriums as of June 30, 2020,” said the rating agency in its rationale.
Moody’s review will focus on developments around the company’s loan collection rate, likely loan restructuring once the moratorium ends in August and the company’s access to funding and ability to preserve liquidity over the next 12-18 months.
The rating review reflects Moody’s expectation that IIFL Finance’s asset quality will deteriorate on the back of rising loan delinquencies and defaults, as some customers and businesses will struggle with payments, given declining earnings due to the coronavirus-led economic disruptions.
Moody’s could downgrade the rating if the company’s liquidity deteriorates, or if the company experiences a significant deterioration in its asset quality, leading to a worsening of its solvency metrics.
The rating review was initiated on India Infoline Finance on May 29, 2020. Subsequently, on June 18, Moody’s withdrew India Infoline Finance’s rating and assigned a B1 CFR rating to IIFL Finance following the merger of India Infoline Finance with its immediate holding company IIFL Finance. The ratings of IIFL Finance have been under review for downgrade since the date of rating assignment.
According to the rating agency, given the review for downgrade, an upgrade is unlikely in the near term. Nevertheless, Moody’s could confirm the ratings if the company strengthens its liquidity by refinancing or raising new funding over the next few quarters, or improves collection rates on its assets, such that the company is able to meet its maturing obligations without straining its liquidity.