Samp;P reaffirms India8217;s current rating

MUMBAI, July 7: Rating agency, Standard amp; Poor's on Tuesday reaffirmed India's current long-term foreign currency issuer credit rating o...

MUMBAI, July 7: Rating agency, Standard amp; Poor8217;s on Tuesday reaffirmed India8217;s current long-term foreign currency issuer credit rating of BB8217; and its local currency issuer credit rating of BBB8217; with a negative foreign currency outlook.

The rating agency has confirmed the country8217;s rating while assigning BB long-term and B short-term foreign currency ratings to Indian Railway Finance Corporation IRFC. Samp;P also assigned its BBB long-term and A-3 short-term local currency ratings to IRFC with a stable outlook.

IRFC was the first company to be rated by the agency which had revised the country8217;s foreign currency outlook to negative from stable following US sanctions. Samp;P8217;s sovereign rating is one notch below the investment grade while the much-publisised Moody8217;s revised rating is two notches below the investment grade.

Moody8217;s had lowered India8217;s foreign currency country ceilings by two notches to speculative grade. Samp;P statement said the ratings on IRFC reflect the underlying support given by theMinistry of Railways for IRFC debt servicing through a letter comfort on all IRFC borrowings. The sound credit quality of its only client, Indian Railways, also supports the ratings as does the sound business-risk profile of IRFC.

On May 22, in the wake of the series of nuke tests, Samp;P had downgraded the India outlook while reaffirming its sovereign ratings. The change in the outlook reflected the erosion of the country8217;s external financial position following imposition of sanctions by the US and other countries in response to the nuclear tests carried out by the country.

8220;While the country8217;s ample foreign currency reserves 8212; about 25 billion, or twice its stock of estimated short term debt 8212; should allow it to absorb the near term impact of sanctions, India8217;s balance of payments could come under increased strain in the medium term from reduced inflow of both official and private capital,8221; it said in its statement issued earlier.

Samp;P had said that the reduced concessional loans, which now comprisenearly 43 per cent of the country8217;s external debt, will increase the country8217;s dependence on higher cost private funding.

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The sanctions and heightened regional tension could also reduce the flow of foreign direct and equity investment, which have typically exceeded India8217;s modest current account deficit external debt burden to about 165 per cent of exports from 243 per cent in 1994,8221; Samp;P said.

Combined with a poor export performance exports which grew only 3 per cent last year, the recent decline in the country8217;s external debt burden is likely to be halted, if not reversed, Samp;P said. With regard to the negative outlook, Samp;P said, quot;A ratings downgrade could occur if economic sanctions materially worsen the country8217;s access to external funding, lower its growth prospects and exacerbate its already high fiscal deficit.quot;