Metals producers make up most of the list
With more than 550 downgrades last year — prominent among them Vedanta, Tata Steel, Jindal Steel and Power, Renuka Sugars, JP Associates, BHEL and GMR, some of them to default grade — FY16 was a bad time for corporate India.
The current year, unfortunately, hasn’t got off to a great start — while CARE has lowered the long-term credit rating of the Sajjan Jindal led-JSW Steel, Fitch has downgraded Tata Steel. Not surprisingly, most companies that were downgraded are producers of metals who have been badly hit by the collapse in prices.
Rating agency Icra reports that the credit ratio — the number of upgrades to downgrades — came down to 1.3 times in FY16 from 1.9 times in the previous year. While the number of upgrades at 785 issues exceeded downgrades at 553, the debt value-weighted credit ratio stood at a depressed 0.6 times. Icra notes the rise in the financial sector’s non-performing assets (NPAs), the large volume of corporate debt being restructured, high leverage and the higher proportion of rating downgrades in investment-heavy sectors underscore the systemic credit-quality pressures.
JSPL, which owes lenders R42,000 crore, is now rated below investment grade by Crisil with the firm’s long- and short-term credit rating now down by three to four notches. In mid-February Moody’s lowered the long-term corporate family rating of Tata Steel by two notches to Ba3; soon thereafter, S&P revised downwards the grade of Vedanta Resources’ long-term foreign issuer credit rating to B, the fourth time this fiscal, citing increased pressure on liquidity as the firm attempts to refinance $1.35 billion of borrowings.
Moody’s lowered its outlook on Delhi International Airport’s Ba1 corporate family rating and senior secured ratings to “negative” citing the impact of new tariff order by Airports Economic Regulatory Authority.
It estimated that the new tariff guideline applicable over 2016-2019 will lead to a decrease in annual aeronautical revenues by about R2,000 crore or around 70% from FY17 onwards.
Among others for whom the outlook has been lowered to negative are BHEL, DLF, Lodha Developers, Tata Teleservices and Shree Renuka Sugars. As many as 16 sugar companies and 22 textile-linked companies have also seen rating revisions as have several key infrastructure projects based on tariff changes or lower traffic volumes.
Given the dire situation that the steel sector is in, it’s not surprising that as many as 20 steel producing and processing companies have been downgraded to D or default rating in FY16 so far as per Bloomberg data. The proportion of corporate debt owed by stressed companies, defined as those whose earnings are insufficient to cover their interest obligations, has increased to 41% in December, 2015 up from 35% in December 2014. A fifth of the downgrades, Icra said in its report, was driven by business-related factors such as erosion in market share, delays in project commissioning leading to cost overruns or a deterioration in cost structures that were 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.