RPT-Fitch Affirms India's EXIM and HUDCO at 'BBB-'/Stable

Tue May 13, 2014 5:11am EDT

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May 13 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the ratings of Export-Import Bank of India (EXIM) and Housing and Urban Development Corporation Ltd (HUDCO) at 'BBB-'. The Outlooks on the ratings of the two institutions are Stable. The full list of the rEXIMB.ULating actions is provided at the end of this commentary.

KEY RATING DRIVERS - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR

The ratings of EXIM and HUDCO are equalised with the Indian sovereign's rating (BBB-/Stable) to reflect the policy role that the two institutions have in export financing and social infrastructure, respectively. EXIM and HUDCO benefit from various forms of support from the government, which underpins their current ratings.

EXIM provides financing to companies to promote India's exports via penetration into new markets and the development of export generation capabilities in the country. HUDCO provides financing for lower-income home buyers and for urban infrastructure projects. EXIM and HUDCO are the only financing and development agencies in their respective core policy areas, which underpins their importance to the Indian government.

Both EXIM and HUDCO are 100% owned and controlled by the government and have received various forms of support (capital, funding, liquidity etc.) from the government. That said, EXIM's status as a policy institution is stronger than that of HUDCO's because it was established by the Export-Import Bank of India Act, 1981, under which it cannot be liquidated unless the government gives its approval. HUDCO, which was incorporated under the Companies Act, 1956, does not enjoy such benefits.

The Stable Outlooks on the ratings mirror the Stable Outlook on the sovereign rating.

RATING SENSITIVITIES - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR

As EXIM's and HUDCO's IDRs are equalised with that of the sovereign, any change in the ratings of the latter would lead to corresponding changes in the ratings of the policy institutions. Any dilution in their focus on their policy roles, which appears to be more likely for HUDCO, such that Fitch considers their business model to be no longer driven by their policy roles, could see the government's propensity to support the two institutions weaken and their ratings being impacted accordingly. While EXIM's linkage with the sovereign is expected to remain strong because it is governed by the Act, the agency does not view a weakening of linkage with the government to be a near-term risk for HUDCO given its recent growing focus on policy-related lending.

The full list of rating actions follows:

EXIM:

Long-Term IDR affirmed at 'BBB-'; Outlook Stable

Short-Term IDR affirmed at 'F3'

Support Rating affirmed at '2'

Support Rating Floor affirmed at 'BBB-'

HUDCO:

Long-Term IDR affirmed at 'BBB-'; Outlook Stable

Short-Term IDR affirmed at 'F3'

Support Rating affirmed at '2'

Support Rating Floor affirmed at 'BBB-'

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