India Inc racking up a whopping 7 downgrades a day; here’s why

By: | Updated: July 11, 2016 6:59 AM

At seven a day in the last three months it's raining downgrades in Corporate India. Rating agencies have now lowered credit ratings for a whopping 665 companies since April...

Corporate growthWith 273 downgrades between January and March, the tally for the first six months of 2016 has now crossed 938 of which 264 firms have earned themselves a ‘default’ tag. (Reuters)

At seven a day in the last three months it’s raining downgrades in Corporate India. Rating agencies have now lowered credit ratings for a whopping 665 companies since April, data compiled from Bloomberg shows. In the process, 60 firms have acquired a ‘default’ status.

With 273 downgrades between January and March, the tally for the first six months of 2016 has now crossed 938 of which 264 firms have earned themselves a ‘default’ tag. The worst hit are firms in the metals, power, construction and infrastructure spaces.Gammon India, Rolta India and Shree Renuka Sugars are among the major companies that have acquired a ‘default’ rating.

Global rating agency Standard and Poor’s (S&P) had lowered the long-term corporate credit rating on Rolta India to ‘D’ from ‘SD’ in June. The agency attributed the downgrade to delay in interest payment by Rolta; Rolta failed to pay interest of $6.8 million due on its 2018 senior unsecured guaranteed notes even after the expiry of the 30-day grace period. S&P observed Rolta’s liquidity situation deteriorated in Q4FY16 due to mounting receivables mainly from the government of India’s defence security projects. “The company’s operating performance declined rapidly, with revenues falling 14% and EBITDA declining 50% during the same quarter. Therefore we believe the company is highly vulnerable to non-payment of its debt service obligations,” S&P said. Bloomberg data shows that at the end of March 2016 the firm’s total debt stood at Rs 5,473.60 crore. In FY16, net profit fell 23% year-on-year to Rs 189.11 crore on the back of Rs 3,799.59 crore in revenues.

In April, CARE had downgraded the long term and short term credit rating of infrastructure company Gammon India. The downgrade was on account of delays in servicing of interest on NCDs and over-drawals in fund based limits. CARE noted the firm’s liquidity position was constrained due to a delay in recoveries from customers, project execution delay resulting in holding of high inventory, thereby blocking working capital funds and causing cost overruns.

Bloomberg data shows that at the end of March 2016 the firm’s total debt stood at Rs 5,473.60 crore. In FY16, net profit fell 23% year-on-year to Rs 189.11 crore on the back of Rs 3,799.59 crore in revenues. The firm had an interest outgo of Rs 476.74 for the year.

A sector- wise analysis showed the rating of as many as 40 steel and allied companies are in trouble after the collapse in the prices of the metal and cheap imports from China flooding the market. Steel Authority of India (SAIL), Tata Steel and JSW Steel are among those whose businesses have been impacted. In April, the long term credit rating of SAIL was revised to ‘BB’ from ‘BBB-‘ by Fitch. The agency also downgraded the senior secured debt of JSW Steel to ‘BB’ with ‘Negative’ outlook from ‘BB+’ .

State-owned lenders are also in a spot following a deterioration in asset quality; among these are – Bank of India, Canara Bank, Syndicate Bank and Indian Overseas Bank. In May,S&P had downgraded the long-term issuer credit rating on public sector lender Bank of India to ‘BB+’ from ‘BBB-‘, while maintaining the outlook as ‘Stable’.

Real estate firm Lodha Developers ‘ finances appear to be strained going by Moody’s lowering of the firm’s rating to ‘B1’ from ‘Ba3’ in June. The company made operating sales of Rs 6,430 crore for fiscal 2016 against Moody’s expectation of Rs 9,000-9,300 crore. “The weak operating performance has also resulted in the increase in borrowings to Rs13,300 crore as of 31 March 2016, compared to Rs 11,800 crore a year ago, ” the agency observed.

Moody’s noted the company needs to refinance GBP 75 million by June, 2016 and another GBP 225 million by December, 2016. In addition, the company had, debt maturing over the next 12 months of Rs1,640 crore in India as of March 2016. “We expect the company to continue to access project construction loans for refinancing these borrowings. In absence of substantial progress on refinancing, the ratings will remain under pressure,” Moody’s noted.

Other prominent companies that were downgraded in the last three months include Reliance Media Works, GVR Infra Projects, Jindal Power and Bayer BioScience.

Analysts point out that while the headline numbers for the economy might appear to be strong, the reality on the ground is quite different with demand weak across sectors. Moreover, those companies whose projects have stalled and have seen costs go awry are in bigger trouble since they are highly-leveraged but are unable to generate cash flows to service the loans.

Gr8

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