1. Over 4 downgrades a day keep Indian corporates, banks debt profile in fragile region

Over 4 downgrades a day keep Indian corporates, banks debt profile in fragile region

With more than four downgrades a day, the debt profile of Indian companies and banks remains fragile. Data from Bloomberg shows there were 807 downgrades in the six months to September compared with 787 upgrades.

By: | Mumbai | Published: October 9, 2017 6:04 AM
bankruptcy issue, bank debt issue, bad loans issue, total bad loans Both Icra and CARE have lowered the lender’s rating due to a significant deterioration in capital adequacy parameters. (PTI)

With more than four downgrades a day, the debt profile of Indian companies and banks remains fragile. Data from Bloomberg shows there were 807 downgrades in the six months to September compared with 787 upgrades. With more companies stressed, several banks are being downgraded. Central Bank of India’s poor financial performance —with losses widening to Rs 2,439.10 crore in FY17 against a net loss of Rs 1,418.2 crore in the previous year and gross NPA ratio burgeoning to 18.23% in Q1FY18 — cost the lender dearly as the rating for its upper tier 2 bonds fell by a notch. Both Icra and CARE have lowered the lender’s rating due to a significant deterioration in capital adequacy parameters.

“With profitability expected to remain under pressure, Central Bank would need to raise tier-I capital of around Rs 4,000-5,000 crore or around 25%-30% of its market capitalisation to meet the minimum regulatory capital requirements,” Icra said.

Citing poor asset quality, Crisil has downgraded debt of Bank of Maharashtra, Corporation Bank and Union Bank of India. Other banks which have seen a rating downgrade in September quarter include UCO Bank, Dena Bank and Oriental Bank of Commerce.

At Rs 2.9 lakh crore, the total value of debt downgraded in H1, by ICRA, was more than 70% higher than that downgraded in FY17. Almost half of this relates to the financial sector. For other sectors the value of debt downgraded was higher by over 30% higher than in FY17.

Given the economy is yet to regain momentum, sectors such as infrastructure, power, textiles and steel remain in trouble.Two ADAG Group companies — Reliance Power and Reliance Infrastructure — which have a gross debt of close to Rs55,755 crore have seen ratings downgraded by ICRA and CARE.

Citing increase in leveraging level and refinancing risks, ICRA downgraded the long-term and the short-term ratings outstanding to the bank limits of Reliance Power aggregating to Rs 6,015 crore from A- and A1 respectively to BBB and A2 respectively.

CARE reduced the rating of Reliance Infra’s long term bank facilities and NCD to A- from A+ due to delay in proposed debt reduction plan of the company. GMR Infrastructure which owes Rs19,844 crore to lenders saw its long-term bank facilities cut to BB from BBB- by CARE.

Long-term bank facilities worth Rs2,533 crore of MEP Infrastructure was also downgraded to default by CRISIL. “The downgrade reflects delays in servicing the rated debt on account of its stretched liquidity position with lower than expected toll collections,” CRISIL observed.

Due to weaker-than-expected credit metrics, the bonds and bank loan facilities of SAIL were lowered by a notch at India Ratings. The agency observed that the EBITDA/tonne of the state-owned steel producer was lower than expected due to a marginal improvement in net sales realisation and a steep increase in coking coal prices in H2FY17.

India Ratings assigned default rating for term loans of Vijay Textiles as the company delayed in debt repayment over 12 months ended July.

However, Rating agency CRISIL believes there is an improvement in the credit ratio of corporates in HIFY18. “The improvement has come about primarily because of better financial indicators as corporates kept away from capital expenditure given the output gap – or substantial headroom in capacity utilisation – in many sectors,” Crisil observed in a recent ratings round-up. It added, the upward trend is expected to continue till demand firms up and lower interest costs provide further support.

Small and mid-sized firms could also see cash flow pressures as they adjust to the new GST regime and some investment-linked sectors such as real estate and capital goods would continue to face headwinds.

  1. K
    Kannan
    Oct 12, 2017 at 8:03 am
    Dear Sir - I wonder how many people understand the impact of HIGH LEVERAGE on a company. The ability to manage cash and growth is severely constrained when debt weighs heavily on the financial operations. This is a VERY SERIOUS ISSUE, as a large number of downgraded companies is a RED FLAG to the relevant sectors and to the economy as a whole. There is a HIGH PROBABILITY of an impending crisis. There is liquidity in the stock market but hundreds of companies are having SERIOUS problems with their cash-flows!!
    Reply

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