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Fitch Rates Shriram Transport Finance's Proposed USD Senior Secured Bonds 'BB(EXP)' - Fitch Ratings

Fitch Ratings - Singapore/Mumbai - 06 Jan 2022: Fitch Ratings has assigned India-based Shriram Transport Finance Company Limited's (STFC, BB/Stable) proposed US dollar-denominated senior secured bonds an expected rating of 'BB(EXP)'. The final rating is subject to the receipt of final documentation conforming to information already received.

The proposed bonds will carry a fixed-rate coupon payable semi-annually and will be secured by a fixed charge over specified accounts receivable, in line with STFC's domestic secured bonds and rupee-denominated senior secured bonds issued overseas. They are also subject to maintenance covenants that require STFC to meet regulatory capital requirements at all times, maintain a net stage 3 asset ratio equal to or less than 7%, and ensure its security coverage ratio is equal to or greater than 1x at all times.

STFC will issue the proposed bonds in the international market under the Reserve Bank of India's external commercial borrowings framework. They will be issued under STFC's global medium term-note programme (affirmed at 'BB' on 28 December 2021), which has been upsized to USD3.5 billion from USD3 billion. The programme rating is unaffected by the upsize.

Key Rating Drivers

STFC's proposed bonds are rated at the same level as its Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BB', in accordance with Fitch's rating criteria.

Most of STFC's debt is secured and Fitch believes that non-payment of the company's senior secured debt would best reflect uncured failure of the entity. STFC can issue unsecured debt in the overseas market, but such debt is likely to constitute a small portion of its funding and thus cannot be viewed as its primary financial obligation.

For more information on the key rating drivers and rating sensitivities on the company, please see "Fitch Affirms Shriram Transport Finance's 'BB' Rating on Proposed Merger; Outlook Stable", published on 28 December 2021.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Any negative action on STFC's Long-Term Foreign-Currency IDR would drive similar action on the expected rating on the proposed bonds.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Any positive action on STFC's Long-Term Foreign-Currency IDR would result in similar action on the expected rating on the proposed bonds.

ESG CONSIDERATIONS

STFC has an ESG Relevance Score of '3' for Customer Welfare, compared with the standard score of '2' for the finance and leasing sector. This reflects its retail-focused operation, which exposes it to risks around fair-lending, pricing-transparency, repossession, foreclosure and collection practices. Aggressive practices in these areas may subject the company to legal, regulatory and reputational risk that may affect its credit profile negatively. The relevance score of '3' for this factor reflects Fitch's view that these risks are adequately managed and have a low impact on STFC's credit profile to date.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

Date of Relevant Committee

27 December 2021

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Shriram Transport Finance Company Limited

LT

BB(EXP) 

Expected Rating

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.

ADDITIONAL DISCLOSURES

  • Solicitation Status
  • Endorsement Policy

ENDORSEMENT STATUS

Shriram Transport Finance Company Limited EU Endorsed, UK Endorsed