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Journalism of Courage
Indian companies are witnessing more rating downgrades than upgrades now due to demand slowdown,rise in raw material costs,delays in debt servicing and weakening cash flows.
Rating firm Crisil downgraded ratings on 148 entities in the third quarter of 2011-12 while upgrading ratings on 138 entities. With downgrades outnumbering upgrades,Crisils rating action ratio RAR,an indicator of the relative frequency of upgrades to downgrades declined to 0.99 times for Q3 2011-12 from 1.11 times for the corresponding quarter of the previous year.
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.
