There could be a revenue destruction of $8.5 trillion in Fitch Ratings’ global corporate portfolio by 2022 based on its baseline coronavirus pandemic scenario.

The global credit rating agency said the oil and gas sector dominates this calculation due to the high global expenditure in this sector.

“Our (global revenue-weighted) curves suggest that revenue loss will be concentrated in five sectors that have accounted for 70 per cent of our negative rating actions so far: oil and gas, retail, leisure, transport, and manufacturing.

“These sectors represent just 50 per cent of portfolio revenue but account for 77 per cent of the lost revenue,” said Fitch in its report, ‘The Road Back: Post-Lockdown Assumptions for Global Corporates (What Coronavirus Does to a $26-Trillion Corporate Portfolio)’.

Richard Hunter, Global Head of Corporate Ratings, Fitch Ratings, observed that the pandemic-related lockdown and its aftermath will erase more than $5 trillion in revenue from the corporate portfolio in 2020.

Indian automakers

Fitch expects declines of about 14 per cent in the top-line revenue of Indian original equipment manufacturers (OEMs). The revenue and earnings of Indian automakers will improve gradually from Q3 (July-September) from lows in Q2 (April-June).

The agency observed that the fall in Indian fuel demand and refinery capacity utilisation will have reached its floor by 2020-end.

Fitch added that the retail price has been constant since mid-March despite lower oil prices, mitigating the impact from inventory losses, before the Indian government increased duties from May 6.

Tariff hikes

The agency predicted that tariff hikes and the resumption of smartphone sales in India will drive a local recovery in Q3, following the easing of lockdown measures, which were among the strictest in the region. It expects to see a gradual transition of customers from 2G and 3G services to 4G services.

“Companies will deprioritise or delay discretionary capex (investment not justified by near-term capacity requirements) to enable investment to meet proven demand and maintain financial flexibility.

“This will be particularly evident in emerging markets such as India...where telecom companies depend on the 4G network to cater to data demand,” said Fitch.

In India, the agency expects a 5 per cent reduction in 2020 plant load factors for renewable power generation companies and no change in regulated tariffs. Plant operations have not been disrupted by lockdowns, but it expects receivable days to be stretched by 90 days.

Fitch opined that Indian power utilities will not change capex (capital expenditure) budgets, but have the flexibility to delay capex if needed. Liquidity support of $12 billion to distribution companies from the Indian government will support generating companies’ cash collection. ·

The agency said the Reserve Bank of India has allowed a three-month moratorium on Indian rupee term loans and may extend deadlines for the commissioning of new capacity.

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