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Govt-backed IFCI slips to high-yield grade, raises investor concern

Govt-backed IFCI slips to high-yield grade, raises investor concern

13 Aug 2021

MUMBAI: Debt investors are beginning to worry about a sovereign backed entity’s ability to meet its debt obligations after downgraded IFCI Limited to double B from BBB-. The outlook remains ‘negative’.

This is one of the few rare occasions when a government-owned entity slipped from the investment-grade category. Air India, HMT had set similar examples in the past.

The company appears to be facing an immediate cash shortage as it has sought board approval to roll over a bond repayment. The rating company cited it as the primary reason behind the rating change for a sovereign-backed entity pulling down the grade by two notches to the high-yield category from investment-grade earlier.

IFCI bonds are generally illiquid with no regular trades in the secondary market. Those long-term papers are generally held by either insurers or retirement funds.

“Any sharp downgrade in a sovereign-backed entity tends to fuel fears in the pandemic environment,” said Ajay Manglunia, managing director – head Institutional Fixed Income, at

. “Although this could well be a temporary blip to manage liquidity, investors are likely to factor this in the primary or secondary market trades.”

The particular series of papers are due for maturity on August 25 this year. Bonds bearing a coupon of 10.55% were sold in 2011.

“The rating downgrade considers the recent approval accorded by the board of IFCI Limited (IFCI) to roll over the upcoming repayment of one of its bonds,” ICRA said in a rating note.

“The enabling board approval underpins IFCI’s intent to build up some liquidity cushion,” it said, adding that IFCI has the required liquidity to make the upcoming repayments.

The actual rollover would be contingent on the receipt of approval from the investors and the regulator.

The debt servicing, according to ICRA, is subsequently going to be highly dependent on the divestment of non-core assets and recoveries from non-performing assets (NPAs), the timing of which remains uncertain.

Earlier on July 31, the company’s board of directors accorded its “in-principle” nod, subject to the approvals of debenture trustees and investors.

In the absence of any positive developments on the business revival plan, the liquidity pressure could keep on increasing in the upcoming quarters.

New Delhi had infused capital of Rs 200 crore each in the past two financial years. It budgeted a capital infusion of Rs. 100 crore for this fiscal year. But, IFCI’s capital requirements are estimated to be much higher.

IFCI did not comment on the matter.

“IFCI’s ability to raise sufficient capital as envisaged in the business revival plan submitted to the government will be critical for the resumption of business and securing fresh funding from other lenders,” ICRA said.

During the April-June quarter, the infrastructure sector lender reported Rs 717.78 crore losses. The company had a net loss of Rs 296.42 crore on a standalone basis in the same quarter of the previous financial year.