At ten a day since April last year it’s been raining downgrades for India Inc. Downgrades have now outnumbered upgrades every month for the past 18 months, save in January this year. Moreover, at 112, the number of companies that saw their ratings rise in February is the lowest since May 2016. After Lodha Developers, Reliance Comm and Tata Steel in January, IFCI and IDBI Bank saw their ratings drop last month.
Corporate India’s debt profile isn’t getting better and, in fact, maybe worsening. Sample this: More than R7 lakh crore of debt is with companies that have had an interest cover (PBIT/interest) of less than one for 12 straight quarters.
That’s roughly a fifth of all bank loans to the industry. For instance, Punj Lloyd and Kesoram Industries together owe lenders over R12,000 crore — the interest cover (PBIT/interest) at both companies has been less than one for 12 straight quarters now.
As Credit Suisse points out, more than a third of corporate loans remain on the books of chronically stressed companies. And at the end of the December 2016 quarter, 41% of the total borrowings belonged to companies with an interest coverage ratio of less than one. Unfortunately, these firms aren’t doing too well — their ebitda, or earnings before interest, tax, depreciation and amortisation, fell 10% in Q3FY17.
Again, as Credit Suisse points out, three ADAG Group companies — RPower, RInfra and RCom — have a gross debt of close to R80,000 crore but each of them reported an ebit (earnings before interest and tax) loss in the December 2016 quarter.
Adani Power posted an ebit of R1,041.3 crore in Q3FY17 and given its interest expense was R1,430.2 crore, the IC ratio was just 0.7X.
As a result, two of its wholly-owned subsidiaries – Adani Power Rajasthan (APRL) and Adani Power Maharashtra (APML) saw their ratings fall in February.
Despite having sold some assets –cement and power plants, the Jaiprakash Group’s outstanding loans remain elevated at close to Rs 70,000 crore. Again, Lanco Infratech’s borrowings are high at over Rs 45,000 crore. The ratio of downgrades to upgrades which was approximately 1.37 in 2015-16 is higher at 2.04 in the current year.
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IDBI Bank’s poor financial performance—it reported losses of Rs 2,255 crore in Q3FY17 and gross NPAs rose to 15.2%—cost the lender dearly as its ratings fell by a notch. That’s not surprising. Lenders, primarily banks, have big reason to worry given they’re already reeling under gross non-performing assets of Rs 7 lakh crore.
State-owned IFCI was downgraded by ICRA, which believes smaller capital generation will weaken the entity. Moreover, given the lender has a fair chunk of loans that could turn toxic, the ratings agency said.