India Ratings and Research (Ind-Ra) on Monday placed Shriram Transport Finance Company’s long-term issuer rating of ‘IND AA+’ on Rating Watch Negative (RWN).
India Ratings and Research (Ind-Ra) on Monday placed Shriram Transport Finance Company’s long-term issuer rating of ‘IND AA+’ on Rating Watch Negative (RWN). The short-term rating has been affirmed at ‘IND A1+’.
The RWN reflects limited near-term visibility on the impact of the measures taken by the authorities to contain the spread of the Covid-19 pandemic on Shriram Transport Finance’s asset quality and credit costs.
Data from Bloomberg show that total borrowings of Shriram Transport Finance stood at Rs 73,389.5 crore as on September 2019. The rating agency remains cautious over the tightening market conditions, which could impact the funding sources.
“Shriram Transport Finance Company’s domestic borrowing spreads have been higher than the historical average since the onset of the liquidity crisis for NBFCs in September 2018. While the company navigated the tough liquidity conditions by augmenting new channels of funding (foreign currency borrowing), any incremental funding from domestic mutual funds and foreign sources could face challenges amid the uncertainty in the global economic scenario and domestic credit markets, and further increase funding costs,” Ind-Ra said in a press release.
The rating agency already has a negative outlook on commercial vehicle financiers due to the excess capacity in the system, reduced freight availability due to the ongoing economic slowdown and margin pressures due to the pressure on freight rates, which have affected the borrower’s debt-servicing ability. “The situation has aggravated due to the lockdown, a further slowdown in the economy and aggravation of the macro-economic stress which are likely to put significant pressure on the borrowers’ cash flows, resulting in pressure on the collections, asset quality and credit costs for Shriram Transport Finance,” it said.
The RWN indicates that the ratings could either be affirmed or downgraded. The RWN will be resolved as and when the agency gets more clarity on the impact of the lockdown on the asset quality of the company, which could be after second-quarter results or earlier. Shriram Transport Finance could witness further downward rating action, by a notch, if in Ind-Ra’s opinion, its business prospects get materially impacted or it faces funding or liquidity challenges that could hinder its repayment capabilities.