"Increased borrowing costs and the weak rupee will pressure the credit quality of rated Indian non-financial companies," Moody's said in a report titled 'Higher borrowing costs, weak rupee will pressure Indian corporate credit metrics'.
It said interest rates in India will likely rise further amid measures by the RBI to tighten liquidity and bolster the rupee, which has fallen near historic lows against the dollar.
"Interest rates for foreign currency borrowings will also increase in light of the US Federal Reserve's decision to taper its bond-buying programme," the report said.
Furthermore, it said, depreciation of the Indian Rupee will lead to revaluation of debt issued in US dollars, which in turn could put pressure on some covenants.
The agency highlighted that the 14 non-financial companies that it rates in India have combined debt of Rs 2.2 lakh crore (USD 32 billion) which is maturing in the fiscal year ending March 2014. Out of this, over 50 per cent is denominated in foreign currency.
Referring to IOC, Tata Steel and Tata Power Company, Moody's said these companies are highly leveraged over the next 12 months and face a steeper increase in interest costs.
"We believe they will be able to refinance their maturing debt, but possibly at higher credit spreads than on existing debt," it said.
On ONGC, RIL, TCS and Gail, it said they operate with large cash balances, which provide a buffer to fund any shortfall in working capital requirements and support near-term refinancing needs, if required.
The report also said that rated companies with debt denominated in foreign currencies will report an increase in total debt value as a result of the historically low rupee exchange rate.
The current exchange rate (value) for rupee against USD is about 15 per cent below where it was on March 31, Moody's said.
"If the companies' total reported debt increases owing to foreign exchange moves, their financial covenant cushion will likely decline, particularly with respect to interest coverage and debt service coverage ratios, as we expect their interest costs to increase as well," it said.
The rated companies, however, have some degree of natural hedge to mitigate against the impact of the depreciating rupee, Moody's added.
Companies with the largest debt maturities through March 2014 are also the ones with the most access to funding, the Moody's report said.
State-run companies ONGC, Bharat Petroleum and IndianOil, and private sector energy conglomerate Reliance Industries, together account for 60 per cent of the total rated corporate debt maturing through next March, it said.
These four companies have over Rs 90,000 crore (USD13.4 billion) in debt denominated in foreign currencies coming due in this period, it added.
However, the agency says it believes "they will continue to have access to domestic and international funding, given their large size, long history, and/or status as state-owned enterprises."
Despite the fall in rupee, the Moody's said its rated non-financial companies should be able to meet their USD 32.8 billion in debt coming due through March 2014, more than half of which is denominated in foreign currency, as they will continue to have access to offshore and onshore funding sources.
Some Indian companies could see the quality of their debt decline as higher global borrowing costs and a sharply weaker rupee take their toll, Moody's Investors Service said on Thursday.
Companies such as Indian Oil Corp, Tata Steel and Tata Power Ltd will remain highly leveraged over the next 12 months because of weak industry dynamics and resulting constraints on cash flows, it said.
"We believe they will be able to refinance their maturing debt, but possibly at higher credit spreads than on existing debt," the agency said.
But while the rupee has slumped as much as 20 per cent this year, it said rated Indian non-financial companies should be able to meet their $32.8 billion in debt coming due through March 2014, more than half of which is denominated in foreign currency, as they will continue to have access to offshore and onshore funding sources.
State-run companies Oil & Natural Gas Corp (ONGC), Bharat Petroleum Corporation Ltd and Indian Oil Corp, and private sector energy conglomerate Reliance Industries (RIL), together account for 60 per cent of the total rated corporate debt maturing through next March, it said.
The agency said that as domestic interest rates are also rising most companies will face higher borrowing costs after refinancing of existing debt.