Rupee fall will not impact India’s rating: Moody’s

Rupee fall will not impact India’s rating: Moody’s

India’s total private sector external debt is at a “relatively low” 16 per cent of GDP.

Global rating agency Moody’s Investors Service on Monday said the sliding rupee will not impact India’s sovereign ratings,but may hurt private sector companies with large overseas debts.

It says the depreciating rupee will only have a “limited” impact on India’s sovereign ratings,as only 7 per cent of total government debt is placed overseas,comprising 5 per cent of GDP.

The bigger pain would come in the private sector,Moody’s said in a weekly credit report out on Monday,given that a falling rupee will raise the cost of paying back foreign currency borrowings — Indian companies together face foreign currency convertible bond redemptions this year of nearly $7 billion (Rs 38,000 crore).

The report further pointed out that the current rupee volatility will be “less damaging than in 1991,when low reserves and a widening current account deficit prompted India’s last balance of payment crisis”.


India’s total private sector external debt is at a “relatively low” 16 per cent of GDP. “Individual firms’ foreign debt repayment troubles are unlikely to lead to the sort of domestic demand collapse or deleveraging seen in countries with more significant private-sector external leverage,” Moody’s said.

Most of the government’s foreign currency debt at 7 per cent is owed to multilateral and bilateral creditors and has a maturity profile that keeps annual foreign currency repayments relatively low. Therefore,the direct effect of depreciation on the government’s own debt repayment capacity is limited,it said. Moody’s has assigned a ‘Baa3/stable’ rating for India.

‘Rs 38,500 crore dole for OMCs a positive step’

Terming the government’s decision to dole out Rs 38,500 crore additional cash subsidy to oil PSUs for fiscal 2011-12 a positive step,credit rating agency Moody’s said it will help IndianOil,HPCL and BPCL to tide over difficult financial position.

“This plan is credit positive for oil marketing companies,including Indian Oil Corporation Ltd (IOC,Baa3 stable),which had limited capacity to share any subsidy burden in the fiscal year owing to a cyclical downturn in the industry’s refining margins,” Moodys’ Investor Service said in a report on Monday.

The cash payout would be on top of Rs 45,000 crore that Indian Oil Corp (IOC),Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) got for the first nine months of 2011-12 financial year.

The three companies had lost a record Rs 1,38,541 crore on selling diesel,domestic LPG and kerosene at government-controlled rates that were way lower than market price.

Together with the additional payout agreed,the government will make up 60 per cent or Rs 83,500 crore of the total revenue loss.