INSUBCONTINENT EXCLUSIVE:
Mumbai: Ratings agency ICRA downgraded Rs 466-crore long-term non-convertible debenture (NCD) programme of Edelweiss Financial Services on
Tuesday, to AA- with a negative outlook from AA
The agency cited vulnerability in Edelweiss Group’s wholesale lending book with the heightened risk profile of the underlying assets,
comprising real estate and structured debt transactions across sectors, and the consequent rise in stressed exposures.
The ratings agency
subsequently withdrew the long-term rating on the Rs 466 crore NCD, short-term rating of the Rs 100-crore short-term NCD and Rs 6,350-crore
commercial paper programmes of Edelweiss, at the request of EFSL.
“The largely untested nature of the book (given the principal moratorium
and bullet repayment structure in a significant quantum of the loans) and the constrained financial flexibility of the underlying borrowers
due to a slowdown in their core operations and their leveraged capital structure further adds to the concerns regarding the wholesale
book,’ ICRA said in a release on June 25.
“Given the current operating environment and the risk averse sentiment of investors towards
non-banks, particularly wholesale-oriented entities, the ability of non-banks to mobilise resources at adequate rates is expected to remain
constrained over the near to medium term,” ICRA analysts added
Although the group has demonstrated its ability to maintain adequate reported asset quality, a prolonged slowdown in the real estate
industry coupled with the liquidity crunch in the overall market could have an adverse impact on the same, going forward, the ratings agency
said.
ICRA said the risks are, however, partly mitigated by the collateral cover maintained for such exposures coupled with the recent
capital raise, which would help reduce the overall leverage and provide some cushion to absorb losses, if any, on the lending book.
It added
the group draws the advantage of in-house operations and execution team and distribution network which provides it with the ability to
closely monitor and resolve assets if there is a requirement
The group’s healthy liquidity profile, at a consolidated level, and the shift in focus towards a more granular retail portfolio would
help de-risk the portfolio and also provide comfort, ICRA added.
It noted that the group benefited from the scaling up of its credit
business over the last few years, driven by its growing focus on retail lending, and the strong performance of its wealth and asset
management businesses supported by the improved performance of the capital markets
However, these positives were partially offset by the credit and concentration risks in the Group’s wholesale lending segments and the
risks associated with the distressed assets business, given the focus on large ticket exposures.
