India Inc rating downgrades on the rise

According to ICRA,Indian companies saw more rating downgrades in the second half of 2011,led by power and hotel firms,and the operating environment is likely to remain challenging. Following adverse changes in the operating environment,the total number of rating downgrades as a percentage of opening issuers reported a sharp increase from 4.4 per cent in the second half of 2010 to 5.8 per cent in the first half of 2011,and further to 10.3 per cent in the second half of 2011. Over the same period,the total number of rating upgrades declined from 7.1 per cent H2,2010 to 4.4 per cent H2,2011,ICRA said.

An analysis of the rating actions during the last four halves indicates that the inverse credit ratio,which after having declined from 1.01 in H1,2010 to 0.62 in H2,2010 rose to 1.36 in H1,2011 and further to 2.34 in H2,2011,was driven primarily by a significant increase in rating downgrades. As much as 75 per cent of the issuers downgraded in H2,2011 had been rated in the Non-Investment grade at the beginning of H2,2011,as against 69 per cent in H1,2011 65 per cent in H2,2010,indicating that a significant proportion of the downgrades in H2,2011 involved issuers with relatively weaker credit profiles.

A third of the downgrades was caused by pressure on demand or profitability,Crisil said. One third of the downgrades was the result of weakening liquidity,either on account of stretched working capital requirements or large capacity expansions; liquidity has emerged as a key monitorable for Crisil in its ratings of entities, it said.