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DCR accords highest ratings to First Leasing programmes

Our Bureau

CALCUTTA, July 10

FIRST Leasing Company of India Ltd (FLC), which recently challenged ICRA's downgrading of its debt programmes in the Madras High Court, has been accorded the highest ratings by DCR India. A press note was issued here today by DCR explaining its rationale .

FLC, it may be recalled, had moved court opposing ICRA's downgrading in January this year of medium- and long-term debt from `MAAA' and `LAAA' respectively to `MAA' and `LAA'. The `A1+' rating assigned to the company's commercial paper programme was, how ever, retained.

Restrained from publishing the rating revision by a status quo order of the High Court, ICRA prayed for vacation. On June 23, the court allowed the application for vacating the order. The main suit was still pending.

DCR India has given `Ind D-1+' and `Ind AAA' ratings to FLC's Rs. 35-crore short-term debt (tenure up to 365 days) and Rs. 10-crore FCDs respectively. The FCDs are convertible after three years.

The key arguments advanced by DCR in the press note are:

W FLC had an established presence in the corporate lending segment, a track record of steady growth, good asset quality and low NPA level.

W It had increased efforts towards improving overall systems and took steps toward decentralisation.

W Its industry-wise exposure was well-diversified; the risk of being caught in the downturn of a business cycle was, therefore, mitigated.

W The biggest exposure was to the railway sector, through a Rs. 75-crore transaction with Indian Railway Finance Corporation, backed by a letter of comfort from the Ministry of Railways.

Some of the factors affecting FLC's ratings were increasing competition for quality assets in the corporate lending sector, the consequent strain on margins and the need to bolster the human resource base, DCR India observed.

ICRA, for its part, had maintained that in the period ended November 1998, FLC had earned a significant amount of extraordinary income, which led to improved profitability. The income from its divestment in First India Asset Management Co for fiscal 1999 was of an extraordinary nature. Its accretion to reserves has been slow in the past, chiefly on account of higher cost of funds.

FLC, ICRA had mentioned, had a large number of medium-sized clients, who were vulnerable to downturns. It had relatively high lending rates, which were expected to be under considerable pressure. ICRA's revised ratings also factored in the concentration on leasing. The agency further noted that in fiscal 1999, the decline in spreads was likely to be arrested partly due to a reduction in cost of funds; cost of funds, however, remained relatively high.