S&P downgrades six Indian companies

MUMBAI, Oct 23: Standard & Poor's of the US, the global credit rating agency, on Friday followed up its downgrading of India's sovere...

MUMBAI, Oct 23: Standard & Poor’s of the US, the global credit rating agency, on Friday followed up its downgrading of India’s sovereign rating by announcing similar action on Indian corporates and financial institutions’ foreign currency ratings. S&P lowered the foreign currency rating of L&T, Reliance Industries, Telco, ICICI, Industrial Development Bank of India and Bank of Baroda to BB’ from BB+’. The revised rating is same as the new sovereign rating.

The outlook on these entities has also been revised from negative to stable in alignment with the sovereign outlook. Bankers said S&P’s downgrading will not have any impact on the overseas Indian corporate debt market as an announcement of this nature was expected. "Downgrading by S&P was expected. It aligns their rating with the below investment grade rating given by Moody’s in June this year," said Natchiket Mor, ICICI treasury head.

Moreover, Indian corporates are currently not having plans to raise foreign exchange debt because of the high pricingon emerging markets papers, said an SBI official. Corporates have been staying away from overseas debt for more than one year, because of lack of appetite of emerging markets papers globally after the South East Asian crisis.

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The only action on the ECB front is related to re-financing deals, where some corporates are trying to raise funds to buy back their own papers that are quoted at wild discounts, said the official. In such cases a downgrade will not have much of an impact, he said.

The spreads on Indian papers had shot up to over 500 basis points above Libor immediately after Moody’s downgrade. This has, however, come down recently following aggressive purchases by overseas branches of Indian banks. At present short term Indian papers of around 5-year maturity is quoting 300-375 basis pints above Libor, while the longer tenor papers of around 10-year maturity is being quoted at 500 basis points above Libor.

However, the short term foreign currency rating of the banks and financial institutions havebeen left untouched. "The B’ short-term foreign currency ratings for all the financial intermediaries, along with that of State Bank of India, are not affected by the rating actions and are affirmed," said an S&P press release.

The reasons cited for the downgrading of corporate and financial institutions is the same as those cited for the sovereign downgrading announced yesterday. "The downgrade on the Republic of India reflects fading prospects for meaningful fiscal adjustment, weakening the sustainability of recent economic growth rates and potentially further raising the country’s already high external debt burden," the press release stated.