Rat­ing agen­cies give con­trast­ing views on credit qual­ity of firms

Mint Asia ST - - News - BNY ASRIN S ULTANA

CREDIT PIC­TURE

Has

credit qual­ity of cor­po­rate In­dia im­proved in the first six months of fis­cal 2018? The an­swer may de­pend on which rat­ing agency you want to be­lieve.

Ac­cord­ing to Crisil Rat­ings, the debtweighted credit ra­tio jumped to 3.19 times for the first half of fis­cal 2018 com­pared to 1.92 times a year ago. Debt-weighted credit ra­tio refers to ra­tio of up­grades to down­grades weighted by the quan­tity of debt.

The reg­u­lar credit ra­tio—i.e. the num­ber of up­grades to down­grades—also im­proved to 1.88 times this fis­cal, show­ing an im­prove­ment in credit qual­ity.

On the other hand, Icra Ltd said that the debt-weighted credit ra­tio of the en­ti­ties it rates fell to one time in the first half of fis­cal 2018 com­pared to 1.7 times in fis­cal 2017. This is “in­dica­tive of the con­tin­u­ing pres­sures on credit qual­ity,” the rat­ings com­pany said.

To be sure, the num­bers may not be en­tirely com­pa­ra­ble. Icra has made a to­tal of 565 rat­ings changes in the first half of the cur­rent fis­cal com­pared to 1,251 for Crisil.

The sec­toral com­po­si­tion of these rat­ings may also dif­fer.

Icra’s debt-weighted ra­tio also ex­cludes the top 5% of the sharpest rat­ings changes. Crisil said that the credit ra­tios have seen an im­prove­ment on a 12-month rolling ba­sis also show­ing that it is sus­tain­able and free of “pe­riod bias”.

Pawan Agrawal, chief an­a­lyt­i­cal of­fi­cer at Crisil Rat­ings, said im­prove­ment in credit qual­ity was pri­mar­ily be­cause of bet­ter fi­nan­cial in­di­ca­tors as com­pa­nies kept away from cap­i­tal ex­pen­di­ture given sub­stan­tial head­room in ca­pac­ity uti­liza­tion in many sec­tors. He ex­pects this trend to con­tinue till de­mand firms up while lower in­ter­est costs will pro­vide fur­ther sup­port.

Icra pointed out that it down­graded Rs2.9 tril­lion worth of debt in the first half of this fis­cal, higher than the amount down­graded over the en­tire fis­cal 2017. Fer­rous met­als, bank­ing and fi­nance and tele­com were some se­lect sec­tors where the num­ber of down­grades was higher than up­grades.

“In fis­cal 2017, in the non-fi­nan­cial sec­tor, the top 10 per­centile of en­ti­ties down­graded ac­counted for around 50% of the to­tal debt down­graded. This fig­ure stood much lower at around 30% in the first half of fi­nan­cial year 2018, sig­ni­fy­ing that credit qual­ity pres­sures have be­come rel­a­tively more wide­spread, and are not just re­stricted to a lim­ited set of en­ti­ties,” said Jitin Makkar, head of credit pol­icy at Icra.

The con­trast­ing data comes at a time when the In­dian econ­omy is plagued with the twin bal­ance sheet prob­lem of bad loans and over­lever­aged firms. Cor­po­rate earn­ings are also far away from a re­cov­ery while In­dian banks are sit­ting on stressed loans of over Rs10 tril­lion.

Bankers said that while most of the stressed loans are due to le­gacy prob­lem of slow­down in the pre­vi­ous years, the trend on credit ra­tio de­pends on the res­o­lu­tion as well as re­vival of the slug­gish pri­vate sec­tor in­vest­ment.

“Some firms, es­pe­cially small sized ones, con­tinue to face head­winds of de­mon­eti­sa­tion. Ad­di­tion­ally, as they ad­just to GST (goods and ser­vices tax), the cash flows are dis­rup­tive, which is re­flect­ing de­layed loan re­pay­ments. Res­o­lu­tion of stressed loans is one of the key com­po­nents that will help re­vive GDP (gross do­mes­tic prod­uct) growth,” said a se­nior banker with a large Mum­bai-based bank, re­quest­ing anonymity.

Alekh Ar­chana con­trib­uted to this story.

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