Crisil downgraded Rs3.8 trillion worth debt in FY16, highest ever

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Mumbai: India’s largest rating agency Credit Rating Information Services of India Ltd (Crisil) downgraded debt worth Rs.3.8 trillion in the last financial year—the highest amount of downgrades in any year. The rating agency expects credit quality for India companies to remain under pressure in the near term.

“Debt of firms downgraded by CRISIL in fiscal 2016 has risen to an all-time high of Rs.3.8 trillion, underscoring that credit quality pressures continue to mount for India Inc,” the rating agency said in a report released on Monday.

More than half of the Rs.3.8 trillion in downgraded debt belonged to firms in the metal sector, the rating agency said.

For instance, on 10 March Crisil downgraded its rating on certain debt instruments of Jindal Steel and Power Ltd to default, citing delays in payment of interest on the company’s term loans. Crisil said the metal sector was hit by falling realisation and high debt. Infrastructure companies, Crisil said, were the second largest contributor to the Rs.3.8 trillion debt that was downgraded in the last financial year.

“Debt under stress at infrastructure and metal-linked firms is at a record level because there hasn’t been any meaningful deleveraging of balance sheets, and metal prices continue to be low,” said Somasekhar Vemuri, senior director, CRISIL Ratings.

For the second half of financial year 2015-16, Crisil’s debt-weighted credit ratio stood at 0.2, the lowest in the last three years. The debt weighted ratio is a ratio of the total value of debt upgraded to the total value of the debt that has been downgraded. In terms of number of upgrades to downgrades, the credit ratio stood at 0.76.

Crisil expected the debt weighted credit ratio to continue to remain below 1, which is consistent with the weak asset quality outlook for the banking sector.

“The ratio can turnaround only if there is substantial deleveraging of stressed balance sheets through sale of non-core assets, or a sharp reversal in metal prices. A broad-based improvement in credit quality will depend on pick-up in investment demand, favourable monsoon and the government’s ability to continue to push reforms,” Crisil said in its statement.