IL&FS loans, debentures downgraded to junk

The loans, debentures and commercial paper of Infrastructure Finance and Leasing Services (IL&FS) now carry junk or non-investment status due to liquidity pressure at the group level.

Rating agency ICRA effected a multi-notch rating downgrade for IL&FS, which is facing liquidity pressure and overleverage. Its loans and debentures now carry “BB” as against previous rating of “AA+”. Also, commercial paper carries “A4” rating against previous rating of “A1+”.

Ratings remain under watch with developing implications, ICRA said in a statement. Last month, ICRA had cut rating from “AAA” to “AA+” for loans and debentures. IL&FS is a core investment company (CIC) and serves as the holding company of the IL&FS Group, with most business operations domiciled in separate companies. ICRA said the downgrade of ratings takes into account the increase in liquidity pressure at the group level. The company is in the process to raise ~80 billion of funds from the promoter group — through a mix of rights issue and long-term line of credit.

The timely receipt of the same is important to improve the group’s overall liquidity profile.

Further clarity is awaited on the timing of these inflows and given the sizeable repayment obligations of the group’s debt, this remains a key rating sensitivity in the near term.