Extending Monday's fall, Indiabulls Housing Finance (IHFL) fell more than 7 percent on Tuesday after Moody's downgraded the company's rating to B2 from Ba2 with a negative outlook. The stock has fallen 13 percent in two sessions.
IHFL has been a wealth destroyer for a while now owing to fraud allegations, downgrades and rejection of merger with Lakshmi Vilas Bank by the RBI. Just in the last one month, the stock has lost over half its investor wealth, falling over 54 percent.
According to Moody's, the downgrade was driven by the company's ongoing challenges in accessing funds and governance considerations. The continued decline in on-balance sheet loans is a reflection of its funding challenges, the rating agency said in the report.
It added that perceptions of weak governance also have an impact on the company's credit profile.
Moody's noted that the proposed merger with Lakshmi Vilas Bank would have provided some confidence on governance, hence, the rejection by the central bank of this proposal is credit negative.
Moody's expects Indiabull's balance sheet to contract over the next 12 months as the company looks to conserve liquidity. This will support capital and ensure it remains a key credit strength, it further said.
Macquarie also said that the rejection of merger proposal with LVB further jeopardises the funding situation for Indiabulls Housing. "We don’t think organisations can survive by only selling loans. While the cash position of Rs 20,000 crore for IHFL doesn’t post any big liquidity or solvency risk in the near term," it added in a report.
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