Moody’s downgrades Hero FinCorp ratings with negative outlook

The spread of Covid has deteriorated global economic outlook.

Moody’s Investor Service on Friday downgraded Hero FinCorp’s foreign and local currency issuer ratings to ‘Ba1’ from ‘Baa3’. The agency also revised the outlook to negative from ratings under review. Moody’s expects Hero FinCorp’s asset quality and profitability to weaken as loan delinquencies and defaults increase, with customers and businesses facing a fall in earnings and cash flows due to economic disruptions caused by Covid.

The spread of Covid has deteriorated global economic outlook — falling oil prices and decline in asset prices are creating a severe and extensive credit shock across sectors, regions, and markets.

Moody’s expects Indian NBFCs to be affected by the shock given the extensive disruptions to India’s economic activity.

Data from Capitaline show that standalone loan funds of Hero FinCorp stood at Rs 16,322.87 crore as on FY19.

“Hero FinCorp’s unseasoned loan book also poses risks to asset quality, given its limited operating track record and rapid growth in the past few years,” said rating agency in its rationale.

Moody’s believes that the Reserve Bank of India’s forbearance for banks and NBFCs — whereby they can extend six-month loan repayment moratoriums to customers without affecting the asset classification — will soften some of the near-term strain on asset quality, though the sharp slowdown in India’s economic growth will still weigh on asset quality.

Despite the tight liquidity conditions for NBFCs, Hero FinCorp has been able to refinance its maturing obligations. The rating agency said the company has reduced dependence on short-term financing.

However, its modest liquidity buffers have left it exposed to volatile refinancing conditions. That said, these weaknesses are somewhat offset by the company’s strong links with its parent, which help it access banks and debt market investors for funding.