Singapore, June 02, 2020 -- Moody's Investors Service has taken the following rating actions:
• Downgraded the long-term local and foreign currency issuer
ratings of Indian Railway Finance Corporation Limited (IRFC) and Housing
and Urban Development Corp Ltd (HUDCO) to Baa3 from Baa2 -- in line
with India's Baa3 sovereign rating. The outlooks on their
ratings remain negative.
• Affirmed HUDCO's Baseline Credit Assessment (BCA) at ba1.
• Affirmed the long-term local and foreign currency issuer
ratings of Power Finance Corporation Limited (PFC) and REC Limited (REC)
at Baa3. The outlooks on their ratings have been changed to negative
from stable -- in line with the sovereign's outlook.
• Affirmed the BCA of PFC at ba3, while REC's Standalone
Assessment remains unchanged at ba3.
A list of all affected ratings and assessments is provided at the end
of this press release.
RATINGS RATIONALE
ECONOMIC DISRUPTION CAUSED BY THE CORONAVIRUS OUTBREAK AND THE DOWNGRADE
OF THE SOVEREIGN RATING ARE THE KEY DRIVERS FOR TODAY'S RATING ACTIONS
The rating actions on Indian government-related issuers follows
Moody's recent downgrade of the Indian government's ratings to Baa3
from Baa2 with a negative outlook. See Moody's press release https://www.moodys.com/research/--PR_424605
published on 1 June 2020 for details.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, volatile oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets.
Government-related issuers in India have been affected because
of disruptions to India's economy, which will weaken borrowers'
credit profiles. Moody's regards the coronavirus outbreak as a
social risk under its environmental, social and governance (ESG)
framework, given the substantial implications for public health
and safety.
The disruptions from the coronavirus outbreak will worsen an economic
slowdown in India that has already been underway in the past year and
accelerate a deterioration in government-related issuers'
asset quality and profitability. Stimulus measures announced by
the Indian government and the RBI since the start of the outbreak,
such as those directed towards the power sector, will help mitigate
some of the credit risks. But the longer and broader the economic
slowdown, the more these issuers will face asset quality and profitability
issues.
Today's rating actions reflect the impact on the rated issuers of the
breadth and severity of the shock, and the deterioration in credit
quality it has triggered.
DOWNGRADE OF RATINGS OF IRFC AND HUDCO
IRFC and HUDCO's final ratings are at the same level as the sovereign
rating, reflecting Moody's assumption that the two companies
will receive government support in times of need given their close links
with the Government of India. Consequently, the downgrade
of the sovereign rating has led to a downgrade of their long-term
issuer ratings to Baa3 from Baa2 with negative outlooks -- in line
with the outlook on the sovereign rating.
For HUDCO, the affirmation of its ba1 BCA reflects Moody's
expectation that asset quality and profitability pressures arising from
the coronavirus outbreak will be largely mitigated by its strong capitalization
and good asset quality, a result of state government guarantees
and repayment provisions in state budgets over the years. Moody's
also expects the company's liquidity and funding profile to remain
steady, as it benefits from being a public sector enterprise.
AFFIRMATION OF PFC AND REC'S RATINGS AND CHANGE IN OUTLOOKS TO NEGATIVE
FROM STABLE
Moody's affirmation of PFC's long-term issuer ratings
at Baa3 -- which includes a three-notch uplift based on government
support -- and BCA at ba3 reflects Moody's expectation that
asset quality and profitability pressures arising from the coronavirus
outbreak will weigh on its capitalization. However, these
pressures are mitigated by (1) the fact that it is mainly exposed to central
and state-owned power companies, and (2) its good access
to funding. The three-notch uplift for government support
reflects PFC's strategic importance to the Indian government in
serving the power sector.
The change in PFC's outlook to negative from stable follows the
negative outlook on the sovereign rating, as a downgrade of the
sovereign rating would reduce the number of notches incorporated in its
rating for government support and consequently result in a downgrade.
For REC, the affirmation of its long-term issuer ratings
of Baa3 reflects its ba3 Standalone Assessment and a three-notch
uplift for expected affiliate support from its parent PFC. The
maintenance of its ba3 Standalone Assessment reflects Moody's expectation
that asset quality and profitability pressures arising from the coronavirus
outbreak will weigh on its capitalization. But similar to PFC,
these risks are mitigated by (1) the fact that it is mainly exposed to
central and state-owned power companies, and (2) its good
access to funding.
The three-notch uplift from its parent reflects Moody's expectation
that government support will flow through its parent to REC, if
needed, given REC's strategic importance to the government.
The three-notch affiliate support is based on PFC's issuer
rating of Baa3 and the assumption of "Very High" support and
"Very High" dependence under Finance Companies Methodology.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING UP
An upgrade of the ratings is unlikely because the ratings of IRFC,
HUDCO, PFC and REC are already at the same level as India's sovereign
rating. Moody's will stabilize their outlooks if India's
sovereign outlook stabilizes.
WHAT COULD CHANGE THE RATING DOWN
For PFC, a downgrade of its BCA could lead to a downgrade of its
long-term issuer ratings. Moody's would downgrade
its BCA if Moody's expects a deterioration in its profitability
and/or higher problem loans, which will weigh on its already weak
capitalization.
For REC, a lowering of its Standalone Assessment could lead to a
downgrade of its long-term issuer ratings. Moody's
will lower its Standalone Assessment if Moody's expects a significant
weakness in its profitability and asset quality which will deteriorate
its capital.
Any indication of diminishing government support for IRFC, HUDCO,
PFC and REC could also lead to a downgrade of their ratings.
The principal methodologies used in rating Housing and Urban Development
Corp Ltd, and Power Finance Corporation Limited were Finance Companies
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodology used in rating Indian Railway Finance Corporation
Limited was Government-Related Issuers Methodology published in
February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
The principal methodology used in rating REC Limited was Finance Companies
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Indian Railway Finance Corporation Limited (IRFC), headquartered
in New Delhi, reported total assets of INR2.04 trillion as
of 31 March 2019.
Housing and Urban Development Corp Ltd (HUDCO), headquartered in
New Delhi, reported total assets of INR0.74 trillion as of
31 March 2019.
Power Finance Corporation Limited (PFC), headquartered in New Delhi,
reported total consolidated assets of INR6.48 trillion as of 30
September 2019.
REC Limited (REC), headquartered in New Delhi, reported total
assets of INR3.27 trillion as of 31 December 2019.
List of Affected Ratings:
..Issuer: Indian Railway Finance Corporation Limited
....Long-term Issuer Rating (Foreign
and Local Currency), Downgraded to Baa3 from Baa2
....Senior Unsecured Medium-Term Note
Program (Foreign and Local Currency), Downgraded to (P)Baa3 from
(P)Baa2
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Downgraded to Baa3 from Baa2
....Outlook, Remains Negative
..Issuer: Housing and Urban Development Corp Ltd
....Long-term Issuer Rating (Foreign
and Local Currency), Downgraded to Baa3 from Baa2
....Senior Unsecured Medium-Term Note
Program (Foreign and Local Currency), Downgraded to (P)Baa3 from
(P)Baa2
....Outlook, Remains Negative
..Issuer: Power Finance Corporation Limited
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa3
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)Baa3
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa3
....Outlook, Changed To Negative From
Stable
..Issuer: REC Limited
....Long-term Issuer Rating (Foreign
and Local Currency), Affirmed Baa3
....Senior Unsecured Medium-Term Note
Program (Foreign Currency), Affirmed (P)Baa3
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa3
....Outlook, Changed To Negative From
Stable
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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.
Jeffrey Lee
Asst Vice President - Analyst
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
