L&T Finance , a prominent player in India's financial services sector, has received a significant boost to its creditworthiness as S&P Global Ratings upgraded the company's credit ratings. This upgrade comes as part of a broader action affecting several Indian financial institutions following an improvement in India's sovereign credit rating.

Long-Term and Short-Term Ratings Improved

S&P Global Ratings has raised L&T Finance's long-term issuer credit rating to 'BBB' from 'BBB-', with a stable outlook. Simultaneously, the short-term issuer credit rating has been upgraded to 'A-2' from 'A-3'. These upgrades reflect an enhancement in both the company's long-term and short-term creditworthiness assessments.

Rationale Behind the Upgrade

The rating agency's decision is rooted in several key factors:

1. Improved Economic Conditions: S&P expects India's sound economic fundamentals to support growth momentum over the next two to three years.

2. Monetary Policy: The agency notes that monetary policy settings have become increasingly conducive to managing inflationary expectations in India.

3. Structural Improvements: The Indian financial sector is benefiting from structural improvements, such as enhanced recovery of bad loans.

4. Company-Specific Factors: For L&T Finance, S&P revised upwards its assessment of the company's stand-alone credit profile (SACP) to 'bbb-' from 'bb+', reflecting expectations of maintained strengthened capital levels over the next 12-24 months.

Financial Outlook

S&P Global Ratings provided insights into L&T Finance's financial prospects:

• Risk-Adjusted Capital (RAC) Ratio: The agency estimates L&T Finance's RAC ratio will be 15%-20% over the next two years, benefiting from improving economic conditions in India. As of March 31, the RAC ratio stood at 19.70%.

• Risk Profile: L&T Finance's risk profile is expected to improve as the company shifts toward more diversified retail lending.

• Credit Costs: While improving, credit costs are likely to remain on the higher side compared to some rated peers, given the company's focus on loans to more vulnerable borrowers.

Strategic Importance

The stable rating outlook reflects S&P's expectation that L&T Finance will continue to benefit from being part of the Larsen & Toubro group. The company's linkages with the strong Larsen & Toubro brand are expected to help solidify its market position and access to preferential funding sources while maintaining a good capital position over the next two years.

Broader Context

This upgrade is part of a larger action by S&P Global Ratings, which upgraded 10 Indian financial institutions following a similar action on India's sovereign credit rating. The agency raised India's rating to 'BBB/Stable/A-2' from 'BBB-/Positive/A-3', citing the country's sound economic fundamentals and sustained fiscal consolidation.

The credit rating upgrade for L&T Finance underscores the company's improving financial health and its strategic importance within the Larsen & Toubro group. It also reflects the positive outlook for India's financial sector amidst favorable economic conditions and regulatory improvements.

L&T Finance Limited, a prominent player in the Indian financial services sector, has successfully raised Rs 250 crore through the issuance of non-convertible debentures (NCDs). The company allotted 25,000 senior, secured, rated, listed, redeemable NCDs, each with a face value of Rs 1,00,000.

Key Details of the NCD Issuance

• Issue Size: Rs 250.00 crore
• Number of NCDs: 25,000
• Face Value: Rs 1,00,000 per NCD
• Coupon Rate: 7.1242% per annum
• Tenor: 1,154 days
• Allotment Date: July 29, 2025
• Maturity Date: September 25, 2028
• Interest Payment: Annual

Security and Listing

The debentures are secured by an exclusive first-ranking charge over identified fixed deposits and standard receivables of L&T Finance. This security structure provides additional comfort to investors. The company plans to list these NCDs on the National Stock Exchange of India Limited under the New Debt Market segment.

Coupon Payment Schedule

The first coupon payment is scheduled for September 25, 2025, followed by annual payments thereafter. The detailed payment schedule is as follows:

Default Provisions

In case of a payment default extending beyond three months, L&T Finance will be liable to pay an additional interest of 2% per annum over the coupon rate for the defaulting period. This provision aims to protect investor interests and ensure timely payments.

Implications for L&T Finance

This successful NCD issuance demonstrates L&T Finance's strong standing in the debt market and its ability to raise funds at competitive rates. The funds raised through this issue are likely to be used for the company's general corporate purposes, including lending activities and repayment of existing debts.

The relatively long tenor of the NCDs (over 3 years) suggests that L&T Finance is focusing on long-term funding sources to match its asset profile, which is a prudent asset-liability management strategy.

This debt raise comes at a time when the Indian financial services sector is witnessing robust growth, particularly in retail lending segments. L&T Finance, with its diversified product portfolio spanning rural, housing, and infrastructure finance, is well-positioned to capitalize on these growth opportunities.

As the financial landscape continues to evolve, L&T Finance's ability to access diverse funding sources, including through instruments like NCDs, will be crucial in maintaining its growth trajectory and competitive edge in the market.