A few months back IL&FS was rated AAA (highest rating) and in August its rating was downgraded to AA+ and now its rating is downgraded to BB (junk). Recently rating agency ICRA has downgraded IL&FS rating to BB, while it cut the rating for the commercial paper on to A4 from A1+.
ICRA in its rating report mentioned the rating revision is driven by the material weakening of the liquidity profile in light of the sizeable debt servicing obligations. While the company is in the process to raise Rs 80 billion of funds from the promoter group, timely receipt of the same is important to improve the group overall liquidity profile. Ratings also consider the company elevated debt levels owing to the funding commitments towards Group ventures coupled with slow progress on asset monetization (While the IL&FS group has been trying to monetize a number of businesses and projects under its umbrella, progress has been slow, leading to an increase in leverage.) and deterioration in the credit profile of key investee companies.
Earlier RBI has also initiated a special audit on IL&FS after they defaulted on repaying about Rs 2.5 billion worth of inter-corporate deposits to SIDBI. SIDBI has inter-corporate deposits worth Rs 5 billion with IL&FS and an additional deposit worth Rs 5 billion parked with its NBFC arm, IL&FS Financial Services Ltd. The deposits parked with IL&FS Financial services are due in November.
With the parent IL&FS being downgraded, there is a risk of lower ratings for its subsidiaries as well – IL&FS Transportation, IL&FS Tamil Nadu Power, IL&FS Energy Development, IL&FS Security Services, and IL&FS Financial Services.