The extent of leverage of Indian companies that saw credit downgrades by rating agency CRISIL rose to an all-time high of Rs 3.8 lakh crore in fiscal 2015-16. In a review note on the change in ratings during the fiscal, CRISIL said that more than half of this downgraded debt belonged to metal sector that is reeling under the pressure of falling realisation and high debt while the second biggest chunk of downgrades, at about a quarter of this amount belonged to the infrastructure sector noted the rating agency.
While the credit ratio – a gauge of number of upgrades to downgrades – stood at 0.76 for the fiscal, at the end of the second half of the year, the debt weighted credit ratio – the quantum of debt upgraded to that downgraded – was at 0.2, its lowest level in the last three years.
“Debt under stress at infrastructure and metal-linked firms is at a record level because there hasn’t been any meaningful deleveraging of balance sheets, and metal prices continue to be low.” said Somasekhar Vemuri, Senior Director, CRISIL Ratings.
The intensity of rating actions in higher rated, category ‘CRISIL A’ and above continued to be low. During the second half of fiscal 2016, there were 99 rating actions by CRISIL in these categories of which nearly 95% were just one-notch changes.
CRISIL does not expect a sharp improvement in credit quality in the near term. Indebted firms in the investment and metal-linked sectors will continue to face considerable headwinds, while consumption-linked firms with low leverage will see some uptick in credit quality.
“ ..the debt-weighted credit ratio will continue to languish below 1, which is expected to reflect in likely increase in weak assets of banks. The ratio can turnaround only if there is substantial deleveraging of stressed balance sheets through sale of non-core assets, or a sharp reversal in metal prices,”added the rating agency in a press note on Monday.
Earlier on Friday, rating agency ICRA said that the credit ratio of its universe came down to 1.3 in FY16 compared to 1.9 in the previous quarter while the debt value -weighted credit ratio stood at a depressed 0.6 times
A fifth of the 553 downgrades that took place in FY16, ICRA said in its report, was driven by business- related factors such as erosion in market share, delays in project commissioning leading to cost over-runs or a deterioration in cost structurse that was unlikely to be corrected. On the other hand, about a quarter of downgrades was attributed to deterioration in liquidity profile of the issuers and industry -related factors like volumes and realisations.