Outlook for SBI, HDFC Bank, 12 others cut
Borrowing costs from overseas markets may not see substantial jump
Rating firm Moody’s revised the outlook for six financial institutions of India, as well as eight
corporate entities, but borrowing costs for these companies are unlikely to see any substantial jump. The other two ratings agencies, Fitch and S&P, have lower ratings for the sovereign, and therefore for these companies. Anup Roy & Debasis Mohapatra report
While revising India’s credit rating outlook to ‘negative’ from ‘stable’, Moody’s on Friday downgraded the outlook on six financial institutions and eight corporate entities. However, the borrowing cost for these companies is unlikely to see any substantial jump.
The other two international rating agencies, Fitch and S&P, have lower ratings for the sovereign, and therefore of these companies.
The corporate entities that faced outlook revisions are Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Indian Oil Corporation, Oil and Natural Gas Corporation (ONGC), Oil India, Petronet LNG, Infosys, and Tata Consultancy Services (TCS).
Financial firms included State Bank of India (SBI), HDFC Bank, Export-import (EXIM) Bank of India, Hero Fincorp, Housing and Urban Development Corp (HUDCO), and Indian Railway Finance Corp.
The agency also lowered ratings of the Bahrain subsidiaries of ICICI Bank and HDFC Bank after a revision of Bahrain’s sovereign rating.
“In the international market, the lower of the two or three ratings are taken into consideration to determine the funding cost. Therefore, Moody’s outlook change doesn’t make a material difference,” said a senior investment banker.
An executive with a top IT services firm said: “These things are merely procedural. As the sovereign rating has been downgraded, ratings of private firms like Infosys (or TCS) can’t be more than two notches above the sovereign rating. Therefore, this has resulted in a downgrade. It has nothing to do with the fundamentals of the company.”
According to Harihar Krishnamoorthy, head of treasury at Firstrand Bank, the market was not perturbed by the outlook revision, but reacted to uncertainties over the Us-china trade deal and changes in the MSCI Index.
The negative outlook “reflects that Moody’s will downgrade the ratings of these companies if Moody’s downgrades the rating of India sovereign to Baa3 from Baa2”, the rating agency said in a statement.
Generally, the maximum rating that a company can get is limited by the rating of the sovereign, but there are certain exceptions, such as technology companies that derive most of their revenue from foreign shores.
“Ratings for Infosys and TCS are constrained to no more than two notches above the sovereign rating. Therefore, a sovereign rating downgrade will also result in downgrade of the A3 ratings of Infosys and TCS,” said Kaustubh Chaubal, Moody’s senior credit officer, in a statement.
The close links between EXIM Bank, HUDCO, IRFC, and SBI and the Indian government “is the key reason why Moody’s has changed the outlook for these companies to negative from stable, after doing the same for the sovereign rating”, it said.
HDFC Bank’s business has strong links with the sovereign credit profile, including by way of large direct exposure to government debt and exposure to common underlying operating conditions, it said.