By Jindal Haria

India Ratings and Research (Ind-Ra) has taken the following actions on L&T Infrastructure Finance Company Limited’s (LTIF) debt instruments:

Instrument Type

Date of issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

Non-convertible debentures (NCDs)/bank borrowings^

-

-

-

INR 90

IND AAA/Stable

Assigned

NCDs

-

-

-

INR20*

IND AAA/Stable

Affirmed

^ INR90 billion limits shared by LTIF, L&T Housing Finance Limited and L&T Finance Limited.
* Details in Annexure

Analytical Approach: Ind-Ra continues to take a consolidated view of the parent L&T Financial Holdings Limited (LTFHL: ‘IND AAA’/Stable) and its 100% (direct and indirect) operating subsidiaries L&T Finance, L&T Housing Finance and LTIF (together referred to as financial services) for the ratings. This is because of the financial and operational flexibilities that the consolidated finance platform offers to itself as well as to the borrowers. 

To read the detailed rationale of
LTFHL, please click here.

KEY RATING DRIVERS

L&T Group’s High Propensity and Ability to Support: Financial services is among the high growth and profitability businesses in the L&T group and has received regular capital infusions (about INR35 billion) from the group since inception. L&T group has a strong operating profile with adequate resources in terms of on-book liquidity, ability to raise funds from banks as well as capital markets, and assets/investments that can be monetised to support financial services’ growth and liquidity requirements. 

The L&T group has articulated that financial services is a core and integral part of its strategy and expected to be one of the key value drivers for the group. It will also maintain strategic linkages, management oversight and control, majority shareholding and support lines (INR20 billion) towards financial services on an ongoing basis. The management also indicated fungibility with financial services in terms of capital and liquidity over the long term. Ind-Ra expects financial services to contribute about 20% to the group profits in the medium term. 

Energy and Transportation Segments Dominant:
LTIF is the second-largest subsidiary of LTFHL by loan book size (3QFY19: 28% of total loans amounting to INR254.65 billion). The infrastructure business is housed in LTIF, L&T Finance and L&T Infrastructure Debt Fund. Project finance accounts for 83% of LTIF’s book, real estate finance accounts for 11%, while the remainder is constituted by capital market-treasury operations and structured finance. Assets in infrastructure, corporate finance and real estate financing are booked in LTIF and other operating entities based on available liquidity and tenors, capital availability and regulations.  

In addition, LTFHL provides flexibility to developers through multiple financing platforms: non-banking finance company (NBFC; through LTIF), NBFC-infrastructure debt fund, sell-down and debt capital market desks. Consequently, LTFHL (through LTIF and other subsidiaries) can remain exposed to performing assets through the project cycle. Over the last two-to-three quarters, the sell-down market and liquidity have tightened; as a consequence the number of buyers of project exposure has declined while not all rise in borrowing costs may be passed. If the liquidity situation does not materially improve over the next two quarters, the yields in this segment could be under pressure, while for projects with shorter tails (exposure of LTIF is low to such projects) and lower DSCR could face tail default risks. 

Moderate Standalone Asset Quality; Overhang of Certain Large Group Exposures:
LTIF (along with other operating subsidiaries of LTFHL) is one of the largest NBFCs providing wholesale funding. Over the past few years, it has avoided thermal power and focused on projects with a lower construction risk. The total impaired assets in the wholesale segment including thermal power exposures of LTFHL is about INR45 billion in 3QFY19, about 65% of which is provided. LTIF’s gross stage 3 assets were about 15.82% (INR40.29 billion) of total assets under management in 3QFY19, of which about 65% are provided for. Ind-Ra expects the asset quality to improve in the medium-to-long term, as the stress in some infrastructure assets gets recognised and the proportion of newer vintage infrastructure projects (especially those in renewable energy and roads segment which have shorter set-up periods and therefore lower project completion risks) increases. However, its exposure to a major infrastructure and financial conglomerate (INR18 billion, most of which is towards operating assets and hence could have lower eventual losses given default) could remain an overhang on asset quality over the next few quarters. 

Modest Standalone Liquidity:
The treasury operations and management are common for LTFHL and its operating subsidiaries. In terms of asset liability management, the company’s short-term assets are in excess of short-term liabilities by 1% of total assets (including prepayments budgeted based on past behaviour and excluding committed lines from banks). In the absence of prepayment assumptions and committed lines from the lenders, there is a negative gap of 21% (INR60.65 billion) of the total assets in February 2019. It also has unavailed bank lines of INR28.60 billion, which the management expects to increase roughly in line with the growth in the company’s loan book. The company also has 22% of borrowings with tenor of over three years. It has access to LTFHL’s liquidity. LTIF, in addition to its own fund mobilising ability, has access to L&T’s liquidity. Ind-Ra expects the pace of sell-down to reduce further implying that this subsidiary may need to build additional back-up bank lines.  


RATING SENSITIVITIES

Negative: Dilution of support expectations in Ind-Ra’s opinion, either on account of inability to manage asset quality (especially in view of the high loan growth strategy), resulting in higher-than-expected losses or diminished business prospects, materially weakened financial parameters, or decreased importance of LTIF or financial services to the L&T group, or otherwise could lead to a rating downgrade. Lack of timely support in terms of equity capital for growth or a liquidity event would also lead to a negative rating action. Any material deterioration in the credit profile of L&T group or a change of ownership outside of the group could also lead to a negative rating action.
 


COMPANY PROFILE

LTIF is a wholly-owned subsidiary of LTHFL which provides business loans for large-scale infrastructure projects in India. 


FINANCIAL SUMMARY

Particulars (Standalone)

FY18

FY17

Total assets (INR billion)

262.19

248.65

Total equity (INR billion)

33.48

28.81

Net profit (INR billion)

0.76

0.422

Return on average assets (%)

0.3

0.2

Equity/assets (%)

12.77

11.6

Source: LTIF

 

 


RATING HISTORY

Instrument Type

Current Rating/Stable

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating

24 January  2018

NCD

Long-term

INR110

IND AAA/Stable

IND AAA/Stable

ANNEXURE

Issue Type

ISIN

Date of Issuance

Coupon rate (%)

Maturity Date

Size of Issue (billion)

Rating/Outlook

NCD

INE691I07EF9

19 July 2018

8.34

27 December 2019

INR3.00

IND AAA/Stable

Utilised

INR3.00

Unutilised

INR107.00

Total

INR110.00


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Analyst Names

  • Primary Analyst

    Jindal Haria

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001750

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121