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Rating Action:

Moody's takes rating actions on four Indian government-related issuers following sovereign downgrade

02 Jun 2020

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

No Related Data.
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