Rating downgrades accelerate amid Covid-19 pandemic: Icra

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Published: June 12, 2020 12:30 AM

Of the 315 negative rating actions taken by Icra on the non-financial sector entities in the period from March 1, 2020, to May 15, 2020, a majority of them were attributable to the pandemic outbreak.

Given the current uncertainties with regards to the pandemic and the evolving situation, 43 entities were also placed on ratings watch.Given the current uncertainties with regards to the pandemic and the evolving situation, 43 entities were also placed on ratings watch.

The pace of downgrades in the times of Covid-19 has increased, while upgrades have dried up, according to ratings firm Icra. Rating downgrades has accelerated, with the average monthly downgrades increasing by 22%, compared to the monthly average of financial year 2019-2020.

Of the 315 negative rating actions taken by Icra on the non-financial sector entities in the period from March 1, 2020, to May 15, 2020, a majority of them were attributable to the pandemic outbreak. Nearly half of these negative rating actions at around 150 have been downgrades, while a significant proportion of nearly 122 have undergone a change in outlook to negative.

Given the current uncertainties with regards to the pandemic and the evolving situation, 43 entities were also placed on ratings watch. However, negative rating actions have so far impacted nearly 10% of the rated portfolio of corporate sector entities. However, there will be sectors in the remaining 90% of the portfolio which may attract rating actions in the coming days.

The ratings firm expects that once the moratorium ends, there could be a spate of rating actions on companies whose liquidity have come under stress. Sectors like aviation and hospitality are in the high risk category and may see rating actions and they are in direct line of impact from the pandemic.

Commenting on the downgrades, Shamsher Dewan, vice-president (corporate ratings), Icra, said there has been a need to review the creditworthiness of rated entities, especially in sectors hard-hit by the pandemic. Among the sectors that Icra maintains its negative outlook include aviation, hotels and restaurants, retail, automotive, ferrous metals and real estate.

The rating firm maintained a stable outlook for construction and cement, while in the oil & gas space, the outlook on upstream was negative, downstream remained stable.

Downgrades so far have been more prevalent in the lower rating categories, especially the non-investment grade. Negative rating actions in the investment grade have been mostly related to either being placing the ratings watch or change in the outlook to negative, the ratings firm said.

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