In India’s competitive credit environment, the difference between a BBB+ rating and an A rating is not just alphabetical—it’s access to capital, cost of borrowing, and strategic headroom for growth.
If you’re a company with a BBB or BBB+ credit rating, you’re already considered investment-grade, but still face:
– Higher interest rates from banks and NBFCs
– Limited access to public debt markets
– Stricter covenants and collateral requirements
– Reluctance from institutional lenders to extend long-term capital
The challenge isn’t capability—it’s balance sheet optics. And that’s where Operating Lease can unlock meaningful advantages.
The Problem with CapEx-Heavy Growth at BBB+ Rating
As you expand—be it new plants, showrooms, offices, logistics hubs, or IT infrastructure—your instinct may be to fund it via term loans or working capital lines.
But here’s what happens under the hood:
– Capex Lock-In: High upfront for ownership; none for leasing.
– Debt Levels: Increases leverage for loans; neutral for leasing.
– Cash Flow: Initial outflow vs. smoothed rentals.
– Tax Efficiency: Limited deductions vs. full rental deduction.
– Balance Sheet Impact: Asset + Loan vs. off-balance-sheet (IGAAP).
Every additional loan to fund Capex bloats your balance sheet and hurts metrics like Debt to Equity, Return on Assets, Interest Coverage, and Capital Employed Efficiency. This directly impacts your ability to improve your rating from BBB+ to A.
Operating Lease: The Hidden Accelerator for Ratings & Refinancing Power
1. Keep Your Balance Sheet Lean
No asset capitalization (under IGAAP), no loan liability, and preserved net worth ratios. Rating agencies love leaner balance sheets—especially in asset-heavy sectors.
2. Improve Key Rating Metrics
By using leasing instead of debt:
- ROA improves (lower asset base)
- Interest coverage improves (no debt interest)
- EBITDA margins improve (depreciation avoided under IGAAP)
These are core ratios used by CRISIL, ICRA, CARE, and India Ratings in upgrading companies from BBB to A.
3. Boost Future Debt Capacity
By deferring Capex debt today through leasing, you preserve headroom to raise debt later for strategic growth, avoid debt saturation, and gain better terms in the next round of fundraise or refinancing.
4. Accelerate Public Market Access
Companies rated A- and above can tap into listed NCDs and bonds, raise funds from mutual funds, insurers, and pension funds, and enjoy lower coupon rates. Leasing helps you bridge that ratings gap faster by showing stronger financials.
5. Convert CapEx to OpEx and Improve Tax Efficiency
Lease rentals are 100% deductible. You can improve effective tax outflow in high-profit years and manage P&L better during expansion years.
A Note on Ind AS vs IGAAP
If your company follows IGAAP (applicable for most SMEs and unlisted firms), leasing offers full off-balance-sheet treatment. No asset is capitalized, no lease liability appears, and 100% of rental is deductible. This provides clear advantages in improving D/E, ROA, and net worth.
If you follow Ind AS (typically for large or listed companies), leasing is capitalized (as per Ind AS 116), but the cash flow, tax benefits, and debt flexibility remain intact. Even under Ind AS, rating agencies give credit for improved liquidity and capital efficiency enabled through leasing.
CFO Takeaway: Lease Today, Borrow Stronger Tomorrow
Every rupee of CapEx funded through bank loans delays your rating improvement. But every rupee funded through leasing improves your capacity to borrow on better terms.
As a CFO or promoter of a BBB+ rated company, your strategic goal should be:
- Get to A rating as quickly as possible
- Reduce cost of capital by 150–200 bps
- Unlock access to bond markets and institutional capital
Operating Lease is your bridge.
How RFin Can Help
At RFinance (RFin), we specialize in helping BBB-rated companies use leasing to:
- Fund Capex via Operating Lease or Sale & Leaseback
- Avoid debt buildup while expanding rapidly
- Structure tax-optimized rentals with optional buybacks
- Present cleaner books to rating agencies and lenders
We’ve successfully worked with companies across retail, FMCG, coworking, logistics, packaging, and clean energy sectors.
📩 If you’re planning ₹1–₹100 Cr of CapEx this year, talk to us first. We’ll show you how to structure it off-balance-sheet, tax-efficiently, and rating-friendly.
