Fitch affirms REC’s investment-grade rating

On the again of the federal government’s infrastructure funding plan, Fitch expects REC to take care of steady progress over the medium time period.

Fitch Scores on Wednesday mentioned that it has maintained REC’s (previously Rural Electrification Corporation) investment-grade ranking of ‘BBB-‘ because it believes the central authorities — which not directly holds REC’s 52.63% stake by way of PFC — has a robust incentive to supply extraordinary help to the ability sector lender.

The ranking company has additionally affirmed the unfavorable outlook, in step with its related outlook on the Indian sovereign. After Fitch had downgraded its outlook on India’s sovereign ranking to unfavorable from steady in June 2020, REC’s outlook was additionally subsequently revised to unfavorable.

Obligations rated BBB by Fitch’s are judged to be investment-grade indicating comparatively low to reasonable credit score danger. The capability for fee of economic commitments for BBB-rated entities is taken into account enough, however opposed enterprise or financial situations usually tend to impair this capability. On the again of the federal government’s infrastructure funding plan, Fitch expects REC to take care of steady progress over the medium time period.

REC’s revenue elevated by 41% year-on-year to `6,292 crore in April-December, 2020, on account of continued mortgage progress and web curiosity margin enlargement. The state-run agency’s web non-performing property ratio declined to 1.95% by the top of Q3, FY21, from 3.32% at FY20-end and the administration claims that almost all of REC’s mortgage property are repeatedly serviced. REC’s mortgage ebook reached `3.57 lakh crore at 2020-end, up 16% yearly.

The corporate’s price of borrowing is aligned with that of the nationwide authorities, which leads Fitch to consider the market contributors think about REC because the state’s proxy funding automobile for the sector, and {that a} default may harm the state’s credibility in supporting strategically essential authorities entities and their refinancing capability.

The ranking company mentioned that REC additionally benefited from the issuance of capital features and tax-free bonds that accounted for 11% of its borrowing. “REC is financially self-sufficient and has not required monetary help from the state, which constrains the evaluation of the corporate’s authorities help document,” Fitch added.

REC will be downgraded if PFC’s shareholding in REC is diluted to beneath a majority stake, whereas a revision of the outlook on India to ‘steady’ would lead to an analogous improve for REC.