Credit Downgrades Jump Marginally in FY16: Care Ratings

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Mumbai: The number of downgrades in credit rating of companies jumped marginally last fiscal, though it moderated from the highs of 2013-14, Care Ratings said on Thursday.

“Downgrades, although having moderated from the highs of 2013-14, saw a small increase in 2015-16,” the domestic rating agency said in a report here, but was quick to add that overall credit metrics improved in the just concluded fiscal.

The findings are based on evaluation of credit quality of the entities rated by the agency. The number of downgrades accounted for 11 per cent of the cases that were taken up for surveillance in the last three years by Care.

The report said downgrades were higher than upgrades in case of iron and steel, sugar, cement, hospitality, metal and banking sectors.

“Delay in debt servicing were the primary drivers for the downgrades. Decline in margins and profitability, scale of operations, liquidity position, moderation in operational and financial position are some of the other factors that have prompted downgrades,” it added.

The upgrades have outnumbered the downgrades on a sustained basis in the last three fiscals, it said. “On an average, upgrades have accounted for 19 per cent of the surveillance cases undertaken during 2013-16,” it said.

The number of reaffirmation of credit ratings was high at 70 per cent of the surveillance cases (in last three years), asserting stability in the credit markets, the report noted.

The sectors that witnessed a significant increase in upgrades and reaffirmations were construction, textiles, food and food products, general manufacturing, electrical equipment, electricity generation, power transmission and distribution, real estate, wholesale and retail trade, transportation and storage, pharma and auto.