Standard & Poor's (S&P's) today cut the rating outlook of four public sector entities, including EXIM Bank and IIFCL, to negative following the agency's revision of country's sovereign outlook.
Earlier in the day, S&P lowered India's rating outlook to negative and warned of a downgrade in two years if there is no improvement in the fiscal situation and the political climate continues to worsen.
Besides Export-Import Bank of India and India Infrastructure Finance Co Ltd, S&P has also revised the rating outlook to negative from stable for Indian Railway Finance Corp (IRFC) and Power Finance Corp (PFC).
However, it has affirmed the 'BBB-' long- term issuer credit ratings on these government-related entities (GREs).
The rating outlook revisions on GREs reflect the change in outlook on the Republic of India (BBB-/Negative/A-3) on account of slow fiscal progress and deteriorating economic indicators, S&P said in a statement.
"We have equalised the ratings and outlooks on India EXIM, IIFCL, and IRFC with the sovereign rating and outlook.
This reflects the entities' integral linkages with, and their critical roles to, the Government of India.
"We believe there is an "almost certain" likelihood of extraordinary government support to these GREs," S&P noted.
Noting that it views PFC's link to the government as very strong, the agency said, "we therefore assess an extremely high likelihood of extraordinary government support to the company".
Such level of support, combined with PFC's stand-alone credit profile, results in a rating that is at the same level as the rating on India.
"The rating outlook of the government owned institutions cannot be higher than the sovereign rating. So accordingly, our rating outlook has been revised," IIFCL Chairman and Managing Director S K Goel said.
IIFCL get funding from multi-lateral institutions. So rating revision has no impact on the company, he said.
On the company's outlook being cut to negative, PFC Finance Director R Nagarajan said the move follows S&P revising the sovereign rating outlook.
In response to a query on whether the negative outlook would make borrowing expensive for the company, Nagarajan said, "We have to wait and watch. We cannot comment immediately".