It may not be raining downgrades but the cloud cover is thick. With more than three downgrades a day, India Inc’s debt profile remains fragile. In the six months to June, the number of companies whose borrowings attracted a lower rating stood at 632. That might be smaller than the number of upgrades at 652 but it’s nonetheless worrying. Ratings agency Crisil believes that an uptick in domestic consumption demand after demonetisation could help repair some balance sheets. It believes businesses in some over-leveraged sectors such as metals and sugar could bounce back with the commodity cycle turning.
Nevertheless, India’s twin balance sheet problem — non-performing assets with banks and over-leveraged companies — isn’t going away anytime soon. With so many companies in trouble, a host of lenders too have lost their rating status. Among these are Federal Bank, Jammu & Kashmir Bank, Central Bank of India, IDBI Bank, Oriental Bank of Commerce, Bank of Maharashtra, Corporation Bank and UCO Bank.
Reliance Communications, which owes lenders `45,000 crore and was finding it difficult to service the loans, has won a breather from lenders. One sector where the pain could intensify is real estate. India Ratings observed recently the finances of real estate developers continued to remain stretched due to elevated inventory and debt. “We estimate debt levels will further rise given the negative operating cash flows,” analysts at the agency noted.
Already, 2016 was a difficult time with India Inc’s debt quality turning decidedly poor with least two downgrades for every single upgrade; while the downgrades totalled 1,390, the number of upgrades was lower at 548 upgrades.
Among the larger companies that ratings agencies have felt the need to downgrade this year is Tata Steel; the rating was dropped by a notch due to uncertainties relating to disposal and restructuring of the UK business.
CARE revised the unsecured NCD and unsecured rupee loan from existing CARE AA+ (Stable) to CARE AA (Stable). Another company from the Tata stable to attract a downgrade was Tata Power, whose long-term rating was lowered from AA to AA- by ICRA. The outlook is negative in view of under-recovery of fuel cost at the 4,000 MW Mundra Ultra Mega Power Project.
Icra tweaked the rating on UCO Bank’s tier-II bonds worth Rs 1,300 crore as it felt the asset quality could deteriorate. “UCO has a large number of loans continuing to be classified as standard accounts. Hence the reported asset quality is likely to deteriorate further going forward,” it said.
Adani Power, which owes lenders a whopping Rs 49,231 crore, was downgraded by CARE which cited the possible impact of the slump sale of the company’s Mundra power generating business. In mid-February, the agency had downgraded its subsidiaries — Adani Power Maharashtra and Adani Power Rajasthan. Rating agencies between them announced a staggering 3,500 downgrades in 2016-17, an all-time high.