Rating Agency Crisil downgraded debt worth Rs 2.4 lakh crore in the first six months of financial year 2015-2016. Of this debt, 90 per cent is owed by firms from either investment-linked or commodity sectors.
The rating agency said that the credit quality pressures intensified for the highly leveraged firms, the companies with a debt to EBITDA ratio of more than 2.5 times in the first half of current fiscal ended September 2015.
“They will remain under the pressure till deleveraging happens through asset sales...The firms in the metals, real estate and infrastructure space continue to face pressure because of high debt or a steep fall in product prices,” Crisil said in a report.
Overall credit ratio improved to 2.13 times in the first half against 1.68 times in fiscal 2015. In all, there were 981 upgrades to 460 downgrades.
The deterioration is reflected in the debt-weighted credit ratio - total debt on the balance sheets of firms upgraded versus downgraded. This ratio declined to the lowest level in nearly three years to 0.27 times in the first half, against 0.62 times for the entire fiscal 2015.
Crisil's analysis of rating actions in the first half of FY15 showed that those with lower leverage showed improvement. The credit quality improved for firms dependent on consumption or export demand, as well as for those with low leverage.
Somasekhar Vemuri, Senior Director, CRISIL Ratings: "Leverage emerged as a key differentiator of credit quality in the first half. Another critical factor was the extent of linkage firms had to investment cycle, consumption demand and commodity price movement."
Around 80 per cent of the upgrades were of firms with low leverage (debt to EBITDA below 2.5 times) or from the consumption and export-oriented sectors such as packaged food, pharmaceuticals, agricultural products and readymade garments. On the other hand, firms in the metals, real estate and infrastructure space continue to face pressure because of high debt or a steep fall in product prices.
The very low intensity of rating actions in portfolio of companies having ratings higher than 'A-' was evident in the first half.
CRISIL expects the credit ratio of its portfolio to remain high in the medium term -- meaning upgrades will be more than downgrades. However, the debt-weighted credit ratio will remain below 1 time, since the stress in the investment-linked and commodity sectors is expected to continue.
A broad-based improvement in India Inc's credit quality will hinge on number of factors including successful deleveraging of stretched balance sheets and significant improvement in investment demand and commodity prices. The extent of interest rate reduction, and the government's ability to continue to push economic reforms would also have bearing on the recovery process.