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It’s still raining downgrades for India Inc. Between January and July this year, 874 companies have seen the quality of their debt lowered, almost as bad as the 2,500 downgrades in 2016. Moreover, July saw the credit ratio — upgrades to downgrades — slip to 0.82 times from a much better 1.4 times in January. The trend is not surprising given several sectors — real estate, infra, pharma, sugar, banking — are in trouble for one reason or another. India Inc remains highly leveraged and the smaller cash flows are becoming inadequate to service the loans. Worryingly, a host of companies now command a default status.
Bajaj Hindusthan’s long-term bank facilities were downgraded to default from BB+ by Care Ratings, which pointed out the company’s delayed repayment obligations in the June quarter; this was primarily on account of high level of debt vis-a-vis the low operating margin.
Both Care and Icra accorded Adlabs Entertainment, which reported a big loss of Rs 117.18 crore in 2016-17, a default rating for long-term borrowings. The agencies are concerned about the firm’s weak liquidity.
Amid concerns over burgeoning bad loans and deteriorating profit margins in the banking sector, many public sector lenders such as IDBI Bank, Vijaya Bank, Syndicate Bank, UCO Bank and Bank of Maharashtra have also found themselves with lower ratings. Care Ratings had downgraded UCO Bank’s lower Tier 2 bonds to A+ from AA- and upper Tier 2 notes to A from A+ with a negative outlook.
Moreover, a host of non-banking financial companies (NBFCs), Magma ITL Finance, Janalakshmi Financial Services, Religare Finvest, IFCI, Ujjivan Financial Services and Muthoot Fincorp, now command lower ratings.
Wockhardt’s ratings for long-term bank facilities and proposed non-convertible debenture have dropped a notch to AA-; a combination of pricing pressures in the US generics market, continuing import alerts by the USFDA on some of its facilities and Brexit have hurt the firm’s financials.
Care Ratings downgraded its long term bank facilities worth Rs766.25 crore and proposed non-convertible debentures (NCDs) worth Rs250 crore by one notch to AA-. Very recently, the NCDs of Fortis Healthcare Holdings’—promoted by Malvinder Singh and Shivinder Singh — were downgraded by ICRA to BBB+ from A; the agency also downgraded the long term debt programme of Religare Securities to A from A+. The agency observed a significant deterioration in financial flexibility of the Religare Group due to challenges on incremental funding.
India Ratings downgraded NCDs of RHC Holding to default on July 14 as it failed to pay interest on its Rs200 crore woth of NCDs. The ratings agency had also placed three Religare group firms—Religare Enterprises Ltd, Religare Finvest Ltd and Religare Housing Development Finance Corp. Ltd—on a negative watch list due to a default in servicing coupon obligations.