Fitch Ratings has affirmed
The Outlook is Stable, in line with that of the Indian sovereign (BBB-/Stable). Fitch has also affirmed IRFC's
The affirmation reflects Fitch's view that IRFC remains an important Indian government-related entity (GRE). We have taken into consideration the company's strategic role in supporting
KEY RATING DRIVERS
Support Score Assessment 'Virtually certain'
We believe that extraordinary support from the government of
Responsibility to Support
Decision Making and Oversight 'Very Strong'
The government owned 86.36% of IRFC as of the financial year
Precedents of Support 'Very Strong'
The government's supportive framework is included in the standard lease agreement. IRFC services its debt mainly via lease payments from the MoR. IRFC's leases to the MoR are based on a weighted-average cost plus a margin of 40bp for rolling stock assets and 35bp for project assets. The weighted-average cost also covers foreign-currency hedging costs and losses, as well as hedging costs for interest rate fluctuations.
The government grants IRFC tax benefits and eases its financing burden by allowing it to issue 54EC bonds, which carries lower finance costs due to a tax benefit for investors. In addition, there is potential liability transfer in case of IRFC's financial distress. In the event that IRFC is unable to redeem its bonds and/or repay its loans, the MoR is required to make good such shortfalls.
Incentives to Support
Preservation of Government Policy Role 'Strong'
Fitch's assessment reflects IRFC's designation as an important policy role in financing the
Transport is one of four strategic sectors in
Contagion Risk 'Very Strong'
IRFC is the dedicated lending arm of the MoR. Over 98% of IRFC's leasing assets were loaned to IR as of
Operating Performance
IRFC's interest income rose by 3% to INR75 billion in FY23 and lease income by 26% to INR163 billion. In addition, interest income in 9MFY24 rose by 20% yoy to INR67 billion and lease income by 12% yoy to INR135 billion. The company has maintained low general and administrative costs, too. The cost-to-income ratio was 0.6% in FY23, and personnel expenses accounted for only 0.05% of total revenue. IRFC made no loan disbursements in 9MFY24. Assets under management remain closely tied with the MoR.
Derivation Summary
Fitch has assessed IRFC as a GRE that is credit-linked to the Indian sovereign. This reflects our assessment of the entity's 'Very Strong' decision-making and oversight, 'Very Strong' precedents of support, 'Strong' preservation of government policy role, and 'Very Strong' contagion risk. These factors mean it is virtually certain that IRFC will receive extraordinary state support, if needed.
The assessment translates into an overall support of 50 under our GRE criteria, which results in the equalisation of IRFC's IDR with that of the sovereign irrespective of the company's Standalone Credit Profile.
Debt Ratings
IRFC's
Issuer Profile
IRFC, a non-banking financial company majority-owned by the Indian state, acts as the dedicated lending arm of the MoR. The company finances the acquisition of rolling stock assets, leasing of railway infrastructure assets, and lending to other entities under the MoR.
Liquidity and Debt Structure
IRFC's net gearing ratio has moderated in the past two years due to slow loan disbursement. The ratio was 8.54x at end-3QFY24, against 9.21x at FYE23 and 9.47x at FYE22.
IRFC has adequate asset and liability management, which is subject to the
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of the Indian sovereign rating, material weakening in government's control and oversight, precedents of support, or incentive to support and thus lowering the overall support score to below 45.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Any positive movement or upgrade of the Indian sovereign rating would be reflected in IRFC's ratings.
ESG Considerations
Fitch does not assign ESG scores for IRFC, as the ratings and ESG profile are derived from the parent,
Public Ratings with Credit Linkage to other ratings
IRFC's IDR is credit-linked to
References for Substantially Material Source Cited as Key Driver Rating
The principal sources of information used in the analysis are described in the Applicable Criteria.
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