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Rating Action:

Moody's downgrades Indiabulls to B3, outlook remains negative

24 Mar 2020

Singapore, March 24, 2020 -- Moody's Investors Service has downgraded the corporate family rating (CFR) and foreign-currency senior secured rating of Indiabulls Housing Finance Limited (Indiabulls) to B3 from B2.

In addition, Moody's has downgraded Indiabulls' foreign and local currency senior secured MTN program ratings to (P)B3 from (P)B2.

The outlook on all ratings remains negative.

RATINGS RATIONALE

The downgrade and negative outlook reflect Moody's expectation that Indiabulls' access to funding will remain challenging for longer than expected. This is because wholesale funding markets remain largely closed to many financial institutions following the imposition of a moratorium on Yes Bank as well as the broader risk aversion currently prevalent in financial markets globally. There is significant uncertainty around when Indiabulls will regain access to market funding.

As a result, Indiabulls' reliance on asset sales as the primary source of liquidity to repay maturing obligations will increase.

Prima facie, expected cash inflows (customer loan repayments) are sufficient to meet outflows (debt repayments). However, loan repayment rates and debt prepayments are volatile, increasing the risk of a missed payment and as result the risk to creditors. Highlighting these risks, debt repayments over the last nine months ending 31 December 2019 were much higher than the company expected.

Further, an extended period without access to funding could result in significant damage to Indiabulls' franchise. Indiabulls' loan book has been contracting since December 2018, and new disbursements have reduced significantly.

As a result, Indiabulls' profitability will reduce because of lower net interest margins and higher cost-to-income ratios.

Asset quality has also deteriorated, with the gross NPL ratio registering 1.94% at the end of December 2019 compared to 0.88% at the end of March 2019. While the bulk of the deterioration has come from the real estate developer book, there has also been a deterioration in the home loans and loans against property (LAP) segments.

Moody's expects the company's asset quality will continue to weaken. Real estate developers are among the most stressed borrowers in India and are facing the brunt of risk aversion by way of tight access to funding. With the operating environment in India remaining challenging, Moody's expects the home loans and LAP portfolios will also continue to deteriorate. The operating environment will be particularly impacted by the economic dislocations that will be caused by measures taken to combat the spread of the coronavirus such as instituting lockdowns across large parts of the country.

Capital remains a key credit strength, with Indiabulls' balance sheet likely to contract over the next 12 months as the company looks to conserve liquidity.

Moody's continues to make a negative adjustment for corporate governance.

Events over the last year, including the rejection by the Reserve Bank of India of Indiabulls' proposed merger with Lakshmi Vilas Bank, reflect negatively on corporate governance.

There had been allegations against Indiabulls in the Delhi High Court that the company, over the last few years, granted loans to some entities with the intent of benefiting the promoters of the company. In February 2020, the Ministry of Corporate Affairs of the Government of India (Baa2 negative) filed an affidavit in the court stating that its investigations reveal that either these loans were repaid or were standard loans in the company's books. This development is a credit positive. Details that emerged on the group structure and related party type of transactions make the company less transparent to analyze and reduce the predictability of credit outcomes.

WHAT COULD CHANGE THE RATING UP

Given the negative outlook, an upgrade is unlikely in the near term. However, the outlook could return to stable if the company's access to funding improves.

WHAT COULD CHANGE THE RATING DOWN

The ratings could be downgraded if (1) Indiabulls' liquidity position deteriorates, (2) its debt repayments occur faster than indicated in its published debt repayment schedule or (3) its asset quality deteriorates meaningfully.

The principal methodology used in these ratings was Finance Companies Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in New Delhi, Indiabulls Housing Finance Limited reported total assets of INR1,046 billion at 31 December 2019.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Srikanth Vadlamani
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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