The transaction is subject to regulatory approval and is expected to close in 2026.Moody’s noted that the investment will deliver strategic benefits to SFL, including a stronger capital base, improved access to global financing channels and improved risk management practices. The rating agency expects SFL’s capitalization to improve significantly following the transaction, while profitability is expected to gradually increase as the company’s financing costs decline.
Furthermore, access to finance both onshore and offshore is likely to improve.
On a pro forma basis, the capital injection is expected to increase the company’s tangible common equity to tangible assets under management (TCE/TMA) ratio to over 29%, up from 19% in March 2025.
This would place SFL among the highest capitalized non-banking finance companies in India. Moody’s expects the company to maintain a TCE/TMA ratio above 20% over the next four to five years, taking into account credit growth. SFL’s profitability is also expected to increase over the next twelve to eighteen months, supported by lower financing costs and better access to post-transaction liquidity. Moody’s expects a reduction in SFL’s financing costs of approximately 100 basis points over the next two years.
The 12-month debt coverage ratio is also expected to rise to over 90%, up from 31% in March 2025. This improvement is attributed to the large capital injection, although Moody’s expects the ratio to normalize as funds are deployed.
The rating agency also expects SFL’s asset quality to remain stable over the next twelve to eighteen months, citing robust lending and collection practices, a stable macroeconomic environment and a high share of collateralized loans.
However, Moody’s clarified that support from affiliates of MUFG Bank is not included in SFL’s current rating. Although MUFG Bank will have a 20% stake and representation on the board, it is expected that its willingness to provide support in times of stress will remain limited.
The agency will reevaluate partner support considerations if stronger financial ties or documented support mechanisms are established between the two entities.
Moody’s indicated that an upgrade to SFL’s rating could occur if the company maintains a net income to average assets under management ratio of approximately 3.5%, maintains a TCE/TMA ratio above 21% and maintains stable asset quality. A rating upgrade may also be considered if there is a reassessment of the support of MUFG Bank branches.
On the other hand, while a downgrade in the next twelve to eighteen months is considered unlikely, it could be caused by a deterioration in asset quality, profitability or capitalization.
Specific triggers include an increase in net charge-offs to greater than 2.5% of average gross loans, an increase in the ratio of problem loans to gross loans above 7%, a reduction in the TCE/TMA ratio below 17%, or significant regulatory changes affecting the company’s franchise strength.
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Moody’s concluded that continued improvements in profitability, capital metrics and access to financing will be closely monitored to determine the potential for future rating actions.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)
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