At nearly four downgrades a day, India Inc is far from getting over its poor credit quality problems. Indeed, while it seemed like balance sheets were becoming stronger, the trend worsened in the three months to December 2017 at 351 downgrades compared with 922 in the nine months to September. Over-leveraging has dogged corporate balance sheets for nearly four years now with cash flows crimped in a slowing economy. As Credit Suisse pointed out, the share of debt with companies having an interest cover (IC) of less than one was 40% in Q2FY18, little unchanged from the 42% seen in Q1FY18, even as the aggregate interest cover improved sequentially to 2.4x on the back of a 4% growth in earnings before interest, tax, depreciation and amortisation (ebitda). In July last year, the rating for Wockhardt’s long-term bank facilities had been lowered to AA- from AA by CARE Ratings which cited a deterioration in the firm’s operational performance in FY17.
A few of Wockhardt’s facilities had received an import alert from the USFDA, it was facing pricing pressures in the US market and there was the potential adverse impact of Brexit. Earlier in June, the agency had lowered Adani Power’s long term bank facilities to BB-. The possible impact of the company’s plans to slump sale its Mundra power generating business to a subsidiary –Adani Power (Mundra)— was cited as the reason. Around the same time, Adlabs Entertainment acquired a default rating for long-term borrowings from both Care and Icra after it reported a big loss of Rs 117.18 crore for 2016-17. Bajaj Hindusthan’s long-term bank facilities were also given a default status by Care Ratings—earlier these were BB+—with the agency citing the delayed repayment obligations in the June quarter. Another firm that found itself with a default rating was MEP Infrastructure whose long-term bank facilities worth Rs 2,533 crore were downgraded 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.
Several banks found themselves with lower ratings last year as losses rose in the wake of bigger provisions for loan losses. In October, ICRA downgraded the ratings on the Rs700 crore lower tier-2 bonds programme of Corporation Bank to AA- from AA, attributing the revision to the sharp deterioration in the bank’s asset quality and solvency level. The ratings on the bank loan facilities and debt instruments of Janalakshmi Financial Services Limited were lowered to “BBB+” by CRISIL. Moreover, the ratings on the non-convertible debentures (NCDs) and CP programme were dropped to “BBB+” and “A2+” respectively.