IL & FS jeopardizes asset-backed securities market and highlights risks of continuity: Fitch


IL & FS, IL & FS Board Meeting, Uday Kotak, Leasing of Infrastructure & Financial Services, Financial Crisis, Board MeetingOn October 1, the government replaced the IL & FS board of directors and appointed a six-member board chaired by Kotak. (Reuters)

The recent payment defaults related to infrastructure leasing and financial services (IL & FS) have highlighted the risks of continuity for asset-backed securities issuers in India, the rating agency Fitch said in a statement. report Thursday. Formerly considered a premier non-bank financial institution (NBII), IL & FS and its subsidiaries have defaulted on a number of bonds in recent years. This has undermined the market sentiment towards the NBFI sector and the issuance of asset-backed securities, he added.

IL & FS was not in itself a counterparty to globally rated ABS Notes, said the rating agency, but NBFIs act as managers and initiators of most Indian ABS transactions, including those rated by Fitch.

In addition, the rating agency added that prolonged and severe stress experienced by the server agent of the transaction may disrupt the recovery of underlying assets and adversely affect liquidity, the report added. In particular, yields on NBFIs' securitization notes have increased, while transaction flows have stopped.

The ABS transactions noted by the agency have a liquidity coverage of at least three months, which shows that it expects this period may be necessary to replace a server agent in distress.

"This liquidity requirement increases in cases where we believe that the risk of continuity of service is particularly high or that the replacement time of the latter is likely to be longer," the report says. However, the rating agency said that the underlying performance of ABS pools rated remains solid.

Over the next six months, from October 29 to March 13, 2019, the IL & FS Group is required to repay approximately 1,085 crore of commercial paper. The besieged group has a total debt of about Rs 91 million. At the same time, the Financial Express announced that the new board of IL & FS would sponsor a judicial audit to clarify the operations of the group and its statements. financial.

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