Moody’s takes rating action on three NBFCs

By: |
April 14, 2020 2:20 AM

The data from Bloomberg show that total borrowings (short term and long term) of Muthoot Finance were Rs 29,346.4 crore as of FY19.

Moody’s placed Hero FinCorp's local and foreign currency Baa3 issuer rating under review for downgrade. Moody’s placed Hero FinCorp’s local and foreign currency Baa3 issuer rating under review for downgrade.

Moody’s Investors Service took the rating action on three Indian non-banking financial companies (NBFCs) – Hero FinCorp, India Infoline Finance and Muthoot Finance. According to the rating agency, NBFCs have been impacted due to disruptions in economic activity following the outbreak of the novel coronavirus, which will weaken these companies’ credit profiles.

Moody’s placed Hero FinCorp’s local and foreign currency Baa3 issuer rating under review for downgrade. Even India Infoline Finance Ba3 Corporate Family Rating (CFR), (P)Ba3 foreign and local currency senior secured MTN program ratings, and Ba3 senior unsecured debt rating are placed under review for downgrade. However, Muthoot Finance’s Ba2 CFR was affirmed, and its outlook changed to ‘negative’ from ‘stable’.

“We expect the asset quality of these three companies to 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 21-day nationwide lockdown across India,” said Alka Anbarasu, a Moody’s vice-president and senior credit officer.

The rapid spread of novel coronavirus, deteriorating global economic outlook, volatile oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. In its rating rationale, the rating agency also said that although RBI’s three-month loan repayment moratorium will help borrowers without affecting the asset quality classifications for NBFCs, it will also slow the pace at which loan balances are reduced, or even foreclosed on, which in turn will result in some loans performing poorly than they otherwise would have.

The data from Bloomberg show that total borrowings (short term and long term) of Muthoot Finance were Rs 29,346.4 crore as of FY19. Total borrowings of India Infoline Finance stood at Rs 14,398.8 crore as of March 2019.

Given the review for downgrade, an upgrade is unlikely for Hero Fincorp in the near term. However, Moody’s could downgrade the company’s ratings if there is a material deterioration in its asset quality, which leads to more pressure on its profitability and its funding and liquidity profile deteriorates. According to the rating agency, India Infoline Finance and Muthoot Finance outlook could return to ‘stable’ if the company’s solvency and liquidity remain stable over the next few quarters.

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