The management crisis and rise in NPA’s at Sahayata Microfinance has resulted in CRISIL downgrading its rating on the long-term bank loan facilities of Sahayata Microfinance Pvt Ltd (Sahayata) to ‘CRISIL B/Rating Watch with Negative Implications’ from ‘CRISIL BB-/Stable’.
The downgrade reflects Sahayata’s inability to raise adequate funding and equity capital within the expected timelines, which has led to the shrinking of its loan portfolio. In addition, the company’s top management has been replaced by its board since mid-September following concerns on its performance, after which there has been a significant slowdown in the operations of the company. The rating also reflects Sahayata’s modest asset quality and earnings profile. These rating weaknesses are partially offset by Sahayata’s adequate capitalisation levels.
Sahayata has been unable to raise any material amount of fresh funding through bank lines (except from Rs.195 million non-convertible debentures raised through Developing World Markets in April 2011) since the promulgation of the Andhra Pradesh ordinance in October 2011. Furthermore, the company expected additional equity infusion of around Rs.250 million from its existing investors by the end of 2010-11 (refers to financial year, April 1 to March 31); this, however, did not materialised as well.
The lack of adequate funding has led to the shrinking of Sahayata’s loan portfolio to around Rs.800 million as of mid-October 2011 compared to Rs.1260 million as on March 31, 2011. While Sahayata’s current liquidity is sufficient to enable it to make its debt repayments for the next few months, CRISIL believes that the company will need funding support thereafter.
Moreover, in September 2011, Sahayata’s board took the decision of suspending most of its senior management, including its managing director, following concerns on the performance of its portfolio. The board had also temporarily decided to stop disbursements for a few months, since this development. Sahayata is currently undergoing a comprehensive independent audit of its operations, the findings of which will be available over the next few months. Until then, Sahayata’s operations will be managed by special advisors appointed by its existing investors, Caspian Advisors and Microventures SPA. CRISIL believes that the company’s financial position will be clearer, subsequent to the findings of the independent audit. Sahayata’s ability to put in place a new management team, successfully address the issues highlighted in the independent audit, strengthen its risk control systems and procure funding to maintain adequate liquidity will be the key monitorables for its rating.
Furthermore, Sahayata’s asset quality and earnings profile remain modest. Its 90 days past due (including write-offs) as a percentage of its loan portfolio deteriorated materially to 4.71 per cent as on March 31, 2011, compared to 0.48 per cent as on March 31, 2010. In addition, the company reported a net loss of Rs.49 million for 2010-11 compared to a net profit of Rs.52 million for 2009-10. While Sahayata’s capitalisation levels are adequate, with a net worth of Rs.313 million as on March 31, 2011, CRISIL believes its ability to raise adequate and timely equity capital will be critical to maintain its liquidity and support its growth plans over the medium term.
CRSIIL will continue to monitor the impact of the funding and management-related issues on Sahayata’s credit profile. Further rating actions may be taken in case of significant deterioration in the company’s financial risk profile, particularly its liquidity.
About Sahayata Microfinance
Sahayata commenced operations as a society in September 2006 in Udaipur (Rajasthan); the promoters came together with their own investments to test the viability of the business in Rajasthan. In August 2007, the promoters acquired a non-banking finance company named Shree Hari Fintrade Pvt Ltd. In August 2009, the company got its present name. Sahayata’s assets under management amounted to Rs.800 million during mid-October 2011 compared to Rs.1260 million as on March 31, 2011.
Sahayata reported a net loss of Rs.26 million on a total income of Rs.80 million for the quarter ended June 30, 2011. For 2010-11, the company reported a net loss of Rs.49 million on total income of Rs.482 million compared to a net profit of Rs.52 million on total income of Rs.237 million in 2009-10.