Care has downgraded ratings on long-term bank facilities, non-convertible debentures of Poonawalla Housing Finance from Care AAA to Care AA-. In a report issued on 18 August, Care Ratings said the rating downgrade has been due to “disassociation with Cyrus Poonawalla Group post the sale of 99% stake in the HFC (housing finance company) to private equity player TPG’s affiliate Perseus.”

On 27 July, TPG announced completing its acquisition of a 99.02% equity stake in Poonawalla Housing Finance Ltd, from Poonawalla Fincorp Ltd. This revision in ratings comes even after TPG has promised to infuse ₹1,000 crore of capital over the next year, of which ₹537.7 crore has already been infused in August. The private equity player is also backing the existing management team led by managing director and chief executive officer Manish Jaiswal and the current business model of Poonawalla Housing of serving the affordable housing segment.

“This kind of rating revision happened even when Gruh Finance was acquired by Bandhan Bank, from AAA to AA. It is believed that the promoter company which has lent out its name will not likely default. Typically, private equity investors have a time horizon in terms of exiting the business,” an official with a rating agency said on condition of anonymity.

With the revision, the borrowing cost for Poonawalla Housing Finance is likely to go up by around 50-60 bps. Experts said TPG in this case would have taken into account this revision in downgrade at the time of acquisition.

“In almost every case, where a financial sponsor takes over an NBFC from a large group, a credit downgrade will happen because of diversity, reduction in capitalisation of the main sponsor. From the rating agency’s point of view, credit risk goes up post the buyout,” said a consultant with one of the Big Four firms.

Private equity investments in NBFC space have increased considerably over the last few years. According to a 2023 report by Bain & Co., PE-VC (private equity-venture capital) investments in the NBFC segment has grown to $2.2 billion in 2022, from $1.4 billion in 2021. This has been primarily on account of incre-ase in NBFC share in total cre-dit from 21% to 27% in 2022, specially from public sector banks in underserved segments.

These institutions have grown share in segments such as personal loans, consumer durables, two-wheeler and three-wheeler finance, and micro, small and medium ente-rprises (MSME), the report said.

Some of the big deals in NBFC space that happened in 2022 involving promoter group divestment include IIFL Housing Finance selling 20% stake to ADIA. However experts say it is only in the case of majority stake sales that ratings undergo a change.

Updated: 21 Aug 2023, 10:54 PM IST