Brickwork Ratings downgrades rating of SREI Infrastructure Finance Limited

Brickwork Ratings (BWR) has downgraded the long-term ratings of SREI Infrastructure Finance Ltd (SIFL) on the innovative perpetual debt instrument to 'BWR BBB-'/Negative from 'BWR BBB+'/Negative and withdraws the non-convertible debentures and commercial paper ratings.

The rating downgrade is mainly driven by the continued stress on asset quality in the equipment and infrastructure financing loan portfolios, impact on collection efficiency due to the COVID-19 pandemic, significant decline in profitability and expectation of continued pressure on the earnings profile in the near term. This, coupled with a decreasing asset base, average capitalisation with continued high gearnings levels and the challenging operating environment for Non-Banking Financial Companies (NBFCs), has impacted SEFL's the overall credit risk profile.

The withdrawal of the NCD rating is on account of the transfer of liabilities from SIFL to SREI Equipment Finance Ltd (SEFL) pursuant to the business transfer agreement dated 1 October 2019, and the withdrawal of the CP rating is on account of the non-utilisation of ratings to raise funds. The withdrawal of the ratings is in line with the BWR withdrawal policy.

Nevertheless, the rating continues to derive comfort from the experienced promoters and management team, established market position with a pan-India presence and an adequate liquidity profile.

The outlook continues to be Negative, considering the risk of a further deterioration in asset quality given the impact of COVID-19 on the domestic economy, pressure on profitability and the resultant impact on capitalisation levels, which is very close to the minimum regulatory requirement. The company's ability to raise capital adequately to cover for asset-side risks and manage gearing levels, improve earnings profile through successfully building on the co-lending business model and avert any further deterioration in the asset quality over the near term will remain key rating monitorables.

BWR also has taken into consideration the effect of the slump exchange, whereby the assets and liabilities of SIFL have been transferred to SEFL in the quarter ended 31 December 2019 with an appointed date of 1 October 2019. The statutory auditor of SEFL in the audit report for the quarter ended 31 March 2020 has highlighted that SEFL and SIFL have accounted for the slump exchange w.e.f 1 October 2019 after receiving approval from shareholders, debenture trustees, few lenders, stock exchanges and in-principle approval from some domestic lenders, including lead banks. The consent or otherwise of other lenders is still awaited. The company has also taken expert legal and accounting opinions, which confirm that the accounting treatment so given is in accordance with relevant IND AS and the underlying guidance and framework. BWR expects that the approval from the other lenders will be received shortly.

Shares of SREI INFRASTRUCTURE FINANCE LTD. was last trading in BSE at Rs.7.3 as compared to the previous close of Rs. 7.31. The total number of shares traded during the day was 103910 in over 202 trades.

The stock hit an intraday high of Rs. 7.61 and intraday low of 7.29. The net turnover during the day was Rs. 771643.

Source : Equity Bulls

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