India Shadow Bank Dollar Bonds Drop After S&P Downgrades

(Bloomberg) — Credit scores of several Indian shadow lenders were downgraded by S&P Global Ratings due to liquidity risks amid an economic downturn brought on by the pandemic, triggering a drop in some of their bonds.

The rating company cut state-owned Power Finance Corp. and Bajaj Finance Ltd. into junk territory, according to a statement dated Friday. Shriram Transport Finance Co. Ltd. and Manappuram Finance Ltd. were lowered deeper into non-investment grade.

Power Finance’s dollar bonds due 2029 and Shriram Transport Finance’s notes maturing 2022 fell about 2 cents on the dollar Monday to 99.8 cents and 92.8 respectively, the biggest decline in two months, according to Bloomberg-compiled prices.

“Liquidity stress could be high for wholesale lenders with large exposure to property developers, companies without a strong parent, or companies with perceived weak governance,” S&P analysts said in the report. “Credit risks remain very high for finance companies in India.”

The world’s strictest stay-at-home measures to contain the pandemic have put the nation’s business and investment activities in a deep slumber, adding to risks for shadow lenders who give loans to everyone from small merchants to tycoons. S&P sees a 5% contraction in Asia’s third-largest economy in the 12 months to March, which would be the first in more than four decades.

Moody’s Investors Service also warned this month that the stress among the lenders may be deeper and broader than it thought. A more prolonged credit crunch would hurt India’s economic growth further, and increase pressure on the financiers’ balance sheets, the rater said.

The nation’s shadow banking industry had already been facing strains since 2018, when the shock failure of financier IL&FS Group led to broader sector scrutiny. While non-bank financiers have to extend a moratorium to their borrowers after the central bank allowed stressed businesses and consumers more time to repay loans, they have debt obligations to repay.

Here’s a list of S&P’s rating actions:

Bajaj Finance

S&P downgraded the credit rating to BB+ from BBB- as it expects the financier’s asset quality and credit costs to deteriorate over the next 12 months. Still, Bajaj Finance will be able to maintain its market position and capital levels over the next 12 to 18 months, the rater said.

Manappuram Finance

The company’s credit rating was cut to B+ from BB- due to the financial fallout of the pandemic on its microfinance business, as many borrowers with weak credit profiles have faced disruptions in income generation. Its core gold-backed loan portfolio will continue to offer stability, S&P said.

Power Finance

S&P lowered Power Finance’s rating to BB+ from BBB- because the power sector has been “severely” hit by the crisis due to a decline in manufacturing demand. It subsequently withdrew the rating at the state-owned company’s request.

Shriram Transport Finance

Rating was downgraded to BB- from BB, and S&P placed the company on credit watch. The Mumbai-based lender’s loan portfolio has been hit as a very large proportion of its borrowers are under moratorium, while its refinancing has been slow. S&P said it may lower the rating by multiple notches over the next few months if liquidity dwindles.

(Adds moves on bonds in third paragraph, chart, individual company details at end of story)

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