Moody's downgrades Indiabulls to B2 on fund raising challenge, governance

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Global rating agency Moody's has downgraded Indiabulls Housing Finance Ltd's  corporate family rating (CFR) and the foreign-currency senior secured rating from "Ba2" to "B2".

The downgrade is driven by Indiabulls' ongoing challenges in accessing to funds. Governance considerations were also a key driver of this rating action.

The company's access to funding remains challenging. The continued decline in on-balance sheet loans is a reflection of its funding challenges, Moody's said in a statement.

While access to funding remains challenging, its pool of liquid assets, ability to run down the loan book and roll over of its bank funding act as a buffer against this risk in the short-term. However, as the funding challenges prolong, the liquidity buffers may erode and expose the company to funding and liquidity risks.

Moody's also cut Indiabulls' foreign and local currency senior secured MTN programme ratings to (P)B2 from (P)Ba2.The outlook on all ratings, where applicable, remains negative.

Moody's said perceptions of weak governance have an impact on the credit profile by impeding access to funding. This is particularly so in the current context, as there has been an increase in lenders' risk aversion towards finance firms following the default by IL&FS in September 2018.

The proposed merger with Lakshmi Vilas Bank would have provided some confidence on governance, as it would have meant that the company passed the regulator's fit and proper criteria for becoming a bank. Hence, the rejection by the Reserve Bank of India of this proposal on October 9 is a credit negative.

The ratings also factor in the high capital of the company. Moody's says it expects Indiabull's balance sheet to contract over the next 12 months as the company looks to conserve liquidity. This will support capital and ensure it remains a key credit strength, Moody's said.

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