The ratings have been "placed on watch with developing implications", an ICRA rating report of May 26 stated.
"ICRA has downgraded the long-term rating outstanding on the Rs 2,000 crore NCD programme and Rs 490 crore term loans of IL&FS Transportation Networks Limited to A- from A," the rating agency said in a statement.
ICRA has also downgraded the short-term rating outstanding on the Rs 320 crore fund-based bank facilities and Rs 1,000 crore commercial paper programme of ITNL to A2+ from A1.
Further, ICRA has downgraded the long-term rating outstanding on the Rs 760.0 crore preference share of ITNL to BBB+ from A-.
ITNL was incorporated in 2000 as a wholly owned subsidiary of IL&FS Limited as a vehicle for housing and consolidating the surface transportation business of the IL&FS Group. As of December 30, 2017, the IL&FS Group held 73.22 per cent stake in ITNL, of which 71.92 per cent was held directly by IL&FS.
The ICRA report said: "The downgrade in the rating takes in to account the weakening of ITNL's financial risk profile with more than anticipated increase in debt levels driven by funding commitments (equity and sub-debt) towards under-construction BOT (BuildOperate-Transfer) projects and additional funding support required for some of the operational BOT projects."
It also said, the near-term debt obligations are high despite efforts being made by the company to elongate its debt maturity profile.
ICRA noted that the company has several plans to reduce the debt levels, including equity infusion, asset monetisation, realisation of claims pending with authorities to recover its investments (loans and advances) from various special purpose vehicles (SPV), and topping up of debt through refinancing for some of the operational BOT projects thereby up-streaming the surplus to ITNL.
Additionally, ICRA stated that the company is also in the process of refinancing the current debt at stand-alone level with elongated maturity profile while also reducing the average interest cost which could relieve pressure on cash flows.
"Going forward, the company's ability to achieve meaningful progress on these endeavours and deleverage its balance sheet remains critical from a credit perspective. Furthermore, the extent of incremental investments made towards project SPVs and the consequent impact on ITNL's financial risk profile would be other rating sensitive factor," the report said.
Saying that the ratings have been placed on watch with developing implications, ICRA stated that it will monitor the progress achieved by the company in terms of its deleveraging plans through equity infusion, asset monetisation and realisation of claims pending with authorities.
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