Mumbai: Credit rating agency Icra Ltd on Wednesday cut the long-term debt rating of Piramal Capital and Housing Finance Ltd and Edelweiss group companies by a notch, citing risks from loans to the real estate sector and difficulty in raising funds.
The move, which comes in the midst of a liquidity crunch at non-banking financial companies (NBFCs), could raise the cost of money for the two non-bank lenders.
Icra cut the rating on debentures of Edelweiss Financial Services Ltd (EFSL), the group holding company, by a notch from AA to AA- because of increased vulnerability in its wholesale lending book and risks of increase in stressed exposures. AA- denotes higher credit risk and default probability compared with AA.
The rating company also withdrew EFSL’s current ratings of both short- and long-term facilities, which include commercial paper worth ₹6,350 crore.
Icra also downgraded the long-term ratings of distressed assets investor Edelweiss Asset Reconstruction Co. Ltd and Edelweiss Housing Finance Ltd.
Separately, Icra cut the ratings of bonds, term loans and debentures of Piramal Capital and Housing Finance Ltd (PCHFL) from AA+ to AA.
“The rating downgrade reflects the increased vulnerability in the Edelweiss group’s wholesale lending book with the heightened risk profile of the underlying assets, comprising real estate and structured debt transactions across sectors, and the consequent rise in stressed exposures," it said.
Responding to a query from Mint, a spokesperson for Edelweiss said the group expects the business environment to improve significantly, given the Reserve Bank of India’s recent move to ease liquidly conditions.
“We are confident that the next nine months will bring a better economic environment and we will continue to manage our businesses and asset quality profile," said the spokesperson.
“We remain well-capitalized and have enough liquidity at all times at 11-13% of our borrowings; our debt to equity ratio is reduced to 3.9 and capital adequacy ratio is 19.8%," added the spokesperson.
A spokesperson for Piramal Enterprises Ltd (PEL), the parent of Piramal Capital, said the rating revision does not reflect any marked change in the company’s operational parameters.
“Icra had earlier upgraded PCHFL’s rating from AA to AA+ in September 2018 and with today’s revision, Icra has reverted to its earlier rating on the company. Over this entire period, Icra’s rating on PEL continues to remain AA," said the spokesperson.
However, Icra believes that NBFCs such as Edelweiss Financial Services and Piramal Capital will find it difficult to mobilize resources at reasonable rates over the near to medium term.
The prolonged slowdown in the real estate sector and the ongoing liquidity crunch could also worsen their asset quality.
The latest downgrades follow a spate of rating revisions in the NBFC sector, stoking fears of a liquidity crisis.
It started with the downgrade at mortgage lender Dewan Housing Finance Ltd earlier this year, following payment defaults by Infrastructure Leasing and Financial Services Ltd and the resultant liquidity crisis.
Over the last few weeks, rating agencies have revised credit ratings of certain debt instruments of Reliance Commercial Finance Ltd and Reliance Home Finance Ltd to “default", or D, on account of the deteriorating financial profile of its parent.
In April, PNB Housing Finance Ltd was also put on a rating watch, with developing implications due to its requirement for raising money to maintain comfortable capital adequacy and gearing level.