Shutdown puts ~15-trn debt at risk
201 stretched firms paid ~1.48 trn as interest in April-december 2019
More than half of all borrowings, worth nearly ~15 trillion, by listed nonfinancial companies are in the danger zone due to the coronavirus (Covid-19) lockdown and its adverse impact on corporate finances in the coming quarters.
According to an analysis by Business Standard, 201 non-financial listed companies are likely to face a sharp deterioration in their financial position in the first half of 2020-21 (FY21), making it tough for them to service their debt.
Some of the top indebted companies likely to face financial headwinds in the coming quarters include NTPC, Powergrid, Tata Steel, Adani Power, JSW Steel, UPL, and Steel Authority of India.
The financially stretched companies in our sample either had negative net worth or earnings before interest, taxes, depreciation, and amortisation (Ebitda) during t he first half of 2019-20 (FY20) or had a high debt-to - equity ratio, high debt-to-ebitda ratio or low interest coverage ratio.
Together these 201 companies owed ~14.9 trillion to their lenders at the end of September 30, 2019, up 4.1 per cent year-on-year (YOY) during the first half of FY20.
The figure rises to ~17.1 trillion if their audited balance sheet for 2018-19 (FY19) is taken into account. The combined borrowings by these companies were up 12 per cent YOY during FY19.
In comparison, the entire sample of 787 companies had combined borrowings worth ~24.2 trillion at the end of September 2019 and ~30.7 trillion at the end of March 2019. The analysis is based on common sample of 880 companies that are either part of BSE500, BSE Midcap or BSE Smallcap index.
The latest RBI dispensation allowing three months moratorium on interest payments by borrowers will allow these companies to delay ~35,000 crore of interest payment over the next three months. Together these companies had spent around ~1.48 trillion on interest payment during the first nine-months (AprilDecember 2019 period) of FY20. The interest moratorium will provide financial breather to these companies from the likely dip in revenue and profits due to Covid-19 shutdown. Interest payment was equivalent to 9 per cent of these companies’ net sales on average during the first nine months of FY20 and was their biggest cost head after raw materials and ahead of employee cost. In comparison, interest payments were equivalent to 3.5 per cent of net sales of all listed nonfinancial companies in the Business Standard sample.
In addition, listed non-banking finance companies such as Housing Development Finance Corporation, Bajaj Finance, Shriram Transport Finance, LIC Housing, Indiabulls Housing, Piramal Enterprises, and L&T Finance Holdings had total borrowings worth ~24.3 trillion at the end of September 2019.