India Infrastructure Finance Company Ltd October 06, 2017

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1 India Infrastructure Finance Company Ltd October 06, 2017 Ratings Facilities Unsecured Taxable * Amount (Rs. Crore) 3,000 (Rupees Three Thousand crore only) Long-term Infrastructure (Rupees Sixty Seven crore and Twelve lakh only) 1, Secured Taxable (Rupees One Thousand One Hundred Nine crore and Four lakh only) 13, Long-term Tax-free (Rupees Thirteen Thousand Seven Hundred Eighty Two crore and Six lakh only) Long-term Tax-free/ 4, Taxable (Rupees Four Thousand Two Hundred Seventeen (proposed) crore and Ninety Three lakh only) *backed by unconditional and irrevocable guarantee from the Government of India. Details of instruments/facilities in Annexure-1 Rating 1 CARE ; Stable [Triple A (Structured Obligation); Outlook: Stable] CARE ; Stable CARE ; Stable CARE ; Stable CARE ; Stable Remarks Detailed Rationale & Key Rating Drivers The ratings assigned to the various bonds of India Infrastructure Finance Company Limited (IIFCL) continue to factor in the 100% ownership of the Government of India (GoI), the demonstrated GoI support, and IIFCL's status as the key institution for financing infrastructure development. The ratings also factor in growth in the lending operations in FY17 (refers to the period April 1 to March 31), comfortable capital adequacy of the company and access to diversified and low-cost funds. Going forward, continued support from GoI, and ability of the company to sustain profitable operations and asset quality would be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Ownership and support from GOI IIFCL is wholly owned by Government of India. GoI has supported IIFCL by way of regular equity infusions in the past. The government also supports IIFCL by way of guaranteeing their borrowings. Of the total borrowings of Rs.31,982 crore as on March 31, 2017, 50.5% is guaranteed by Government of India. Key institution for infrastructure development IIFCL serves the strategic role in financing economically viable infrastructure projects in the country. Cumulative gross sanctions as on March 31, 2017 amounted to Rs. 109,159 crore for around 500 projects in various sectors like road, power, airport, ports, railways and urban infrastructure. Cumulative disbursements as on March 31, 2017 stood at Rs.55,966 crore. IIFCL has been providing innovative financing products to the infrastructure sector, like the credit enhancement scheme wherein IIFCL extends unconditional and irrevocable partial credit guarantee (to the extent of 20% of the total project cost) to enhance the credit profile of the proposed bonds of the commercially viable infrastructure projects. IIFCL has also been allowed to participate in the 5:25 Flexible Structuring Scheme of the Reserve Bank of India. The strategic role played by IIFCL is also evident from the fact that the UK subsidiary, IIFC (UK) has been provided by RBI a line of credit of US$5 billion out of the government s foreign currency reserves for onward financing to infrastructure projects of the country for meeting their foreign currency capital expenditure requirements. Moderate financial performance in FY17 marked by growth in loan book As on March 31, 2017, loan portfolio stood at Rs. 34,071 crore which showed growth of 7.8% over previous year. Being an infrastructure lending company, IIFCL has major exposure in power and road sector. Direct funding portfolio increased 11% to Rs.24,933 crore, further loans under take out finance scheme increased by 0.14% to Rs.9,043 crore and refinance portfolio was nil as on March 31, Total income decreased by 13.8% y-o-y to Rs.3903 crore in FY17 from Rs. 4,527 crore in FY16 on account of loss of interest on NPA accounts. NIM decreased from 4.55% in FY16 to 3.53% in FY17 and Interest spread decreased to 2.42% in FY17 from 3.38% in FY16. Further, the PAT declined significantly to Rs 68 crore from Rs. 468 crore in FY16 mainly due 1 Complete definitions of the ratings assigned are available at and in other CARE publications. 1 CARE Ratings Limited

2 increased provisioning on NPA accounts. The company had written off 14 loan accounts amounting to Rs. 659 crore during FY17 (PY: 18 accounts amounting Rs 573 crore). Consequently ROTA declined to 0.16% in FY17 from 1.15% in FY16. Comfortable capitalization and adequate liquidity profile IIFCL has a comfortable capital adequacy ratio (CAR) of 19.2% as on March 31, 2017 (20.30% as on March 31, 2016). Furthermore, the liquidity profile of IIFCL was adequate as on March 31, Though, there is negative cumulative mismatch in 1-14 days and 2-3 months time bucket as per ALM as on March 31, 2017, IIFCL has access to around Rs.3,700 crore of unutilized OD lines from banks against pledge of FDs which is available to tap any temporary mismatch situation. Access to diversified and low cost funding sources The company has access to diversified low cost funding sources. As on March 31, 2017, of the total external borrowings of Rs.31,982 crore, 47% comprised of secured Non-convertible (including tax free bonds), 11% was unsecured bonds, 39% was financing from multilateral agencies like LIC, ADB, World Banks and KfW and 3% was short term borrowings from banks. The company has been able to raise resources through tax free bond route and from multilateral agencies at very competitive rates. Moderate asset quality parameters The Gross NPA% and Net NPA% deteriorated to 7.78% and 5.47% respectively as on March 31, 2017 (PY: 3.11% and 2.24% respectively), led by gross slippages of Rs.2050 crore (slippage ratio of 6.48%) during FY17. Net NPA/ Net-worth was 25.11% in FY17 (PY: 9.73%). The restructured assets declined as on March 31, 2017 to Rs.3241 crore from Rs.3497 crore as on March 31, Further, as per discussion with the management, the restructured assets amounting Rs. 2, crore are expected to be upgraded to standard loans category. IIFCL has been financing viable infrastructure projects having a high gestation period with loans having tenure of more than 10 years. IIFCL s portfolio has low seasoning and the track record of these assets is yet to be seen. IIFCL caps its lending for any project to the lower of 20% of project cost and 80% of lead bank s exposure. This would limit its losses in the event of possible deterioration in asset quality. In case of refinance portfolio, IIFCL s exposure would be on the banks instead of the projects, which provides further comfort. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition Financial Sector Financial Ratios About the company IIFCL is a special purpose vehicle promoted and regulated directly by the GoI with an aim to provide long-term financial assistance to infrastructure projects in India. It is wholly owned by GoI. It is the apex financial intermediary for the purpose of development and financing of infrastructure projects and facilities in India. During FY14, IIFCL got registered with the RBI as Non-Banking Finance Company Infrastructure Finance Company (NBFC-IFC). In February 2008, IIFCL incorporated a wholly-owned subsidiary, India Infrastructure Finance Company (UK) Limited, based in London with the objective of lending to Indian companies implementing infrastructure projects in India, or to co-finance their External Commercial Borrowings for such projects, solely for the capital expenditure outside India. IIFC (UK) has been provided by RBI a line of credit of $5 billion out of the government s foreign currency reserves for onward financing to infrastructure projects of the country for meeting their foreign currency capital expenditure requirements. Brief Financials (Rs. crore) FY16 (A) FY17 (A) Total Income 4,527 3,903 PAT Interest coverage (times) Total Assets 42,274 42,157 Net NPA (%) ROTA (%) A: Audited Status of non-cooperation with previous CRA: Not applicable Any other information: Not applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. 2 CARE Ratings Limited

3 Analyst Contact: Name: Mr Gaurav Dixit Tel: Mobile: **For detailed Rationale Report and subscription information, please contact us at About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factor. Annexure-1: Details of Instruments/Facilities Name of the Instrument Date of Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook -Unsecured % Apr CARE -Unsecured % Nov CARE -Infrastructure % Mar CARE %-8.48% Sep CARE % Jul CARE (Proposed) CARE %-8.91% Mar CARE Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities 1. -Unsecured Type Current Ratings Amount Outstanding (Rs. crore) Rating LT CARE Rating history CARE Ratings Limited

4 2. -Unsecured LT CARE Infrastructure LT CARE - 4. LT CARE 5. LT CARE 6. LT CARE 7. LT CARE CARE Ratings Limited

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