IL&FS Financial Services Ltd (IFIN) helped finance India's roads and infrastructure. By March 2018, the group was carrying ₹91,091 crore in borrowings.
The downgrade seemed sudden, though concerns about some financial parameters had surfaced earlier. By March 2018, the IL&FS group had consolidated borrowings of about ₹91,091 crore.
Yet some of its non-convertible debentures still carried the highest credit rating until August 5, 2018. By September 17, those securities had been downgraded to D, or default grade.
Securities and Exchange Board of India (SEBI)'s subsequent order recorded something worth understanding carefully. Rating rationales had already raised concerns about IL&FS's rising short-term borrowing, debt-equity, current maturities, operating profit, and slow asset monetization.
The scale made the consequences much larger.
The Government of India's subsequent assessment highlighted the scale and financial stress within the group:
→ 169 companies
→ ₹1.15 lakh crore+ in assets
→ negative operating cash flow
→ high leverage.
When defaults followed, the stress did not remain inside IL&FS.
It created redemption pressure in mutual funds and affected both debt and equity markets.
For investors, a useful distinction matters here. A credit rating is a summary opinion on credit risk at a point in time. The rating rationale often contains far more information about leverage, liquidity, cash flows, and emerging risks.
So when reading a credit rating, I would not stop at AAA, AA, or A. I would spend equal time reading the few paragraphs underneath it. The letter tells you the rating & the rationale tells you what could change it.
(For educational purposes only. This is not investment advice.)
