Moody’s cuts India rating by one notch
GROWING CONCERNS Sovereign credit rating was cut by a level to lowest investment grade with negative outlook
India’s sovereign credit rating was cut by a notch to the lowest investment grade with negative outlook by Moody’s Investors Service, which cited growing risks that Asia’s thirdlargest economy will face a prolonged period of slower growth amid rising debt and persistent stress in parts of the financial system.
The country’s credit rating was downgraded to Baa3 from Baa2, according to a statement. The outlook remained unchanged. “The decision to downgrade India’s ratings reflects Moody’s view that the country’s policymaking institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector,” the ratings firm said on Monday.
India’s fiscal deficit in FY20 widened to 4.6% of GDP against the budgeted 3.8%.
on 31 May reported that the country’s fiscal deficit in FY21 may breach the level of 6.4% of GDP, last seen in the aftermath of the global financial crisis in FY10.
India’s economic growth in the March quarter slowed to a 11-year low at 3.1%, partially reflecting the ongoing nationwide lockdown with fresh data suggesting a sharp contraction in GDP in the June quarter of FY21.
The rating agency said the negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength than Moody’s currently projects.
To be sure, Moody’s was always a notch above other agencies assessing India’s sovereign rating and, hence, had a greater risk of downgrade. Both Fitch Ratings and Standard & Poor’s have the lowest investment grade rating with stable outlook for India at present.
Fitch Ratings and Moody’s had in April warned a deterioration in fiscal outlook as a result of lower growth could put pressure on sovereign rating. Fitch said its assessment of India’s rating in such a scenario would be guided by its judgement of the country’s probable medium-term fiscal path in the post-crisis environment.
Moody’s said it had upgraded India’s ratings to Baa2, the second lowest investment grade, in November 2017 based on the expectation that effective implementation of key reforms would strengthen the sovereign’s credit profile through a gradual but persistent improvement in economic, institutional and fiscal strength.
“Since then, implementation of reforms has been relatively weak and has not resulted in material credit improvements, indicating limited policy effectiveness,” it said.
The ₹53,125 crore rights issue of Reliance Industries Ltd (RIL) was completely subscribed on Monday, two days ahead of the last day of the share sale.
As of 6pm on Monday, the rights offering was subscribed 1.1 times, showed data from stock exchanges. The offer, which opened on May 20, comprises of a sale 422.63 million equity shares.
RIL has offered existing shareholders one new share for 15 held at a discounted price of ₹1,257. On Monday, shares of RIL closed at ₹1,520.45 up 3.77% from its previous close, while the benchmark index, Sensex gained 2.71% to close at 33,303.52 points.
With the rights issue getting completely subscribed, RIL will move closer to its plan of becoming a zero net debt company by March next year. RIL’S net debt stood at ₹1.53 lakh crore as of 31 December.
The rights issue, along with the multiple stake sales in its Jio Platforms business, are an integral part of the debt reduction plan.
Jio Platforms has already attracted investments of $10 billion in just a month from marquee investors comprising Facebook Inc., KKR & Co., Silver Lake, Vista Equity Partners and General Atlantic.
Investors who subscribe to the rights issue have to pay 25% of the total subscription amount and the balance in two instalments in May 2021 and November 2021 respectively.