Moody’s Investors Service on Thursday said sustained weakening of the Indian rupee against the dollar will be credit negative for rated Indian companies that generate revenue in rupees but rely heavily on US-dollar debt to fund operations and thus have significant dollar-based costs.
However, the global credit rating agency expects that the negative credit implications will be limited.
Rupee view: INR positive as Fed maintains status quo
The observation comes in the backdrop of the Indian rupee closing around 74.66 against the US dollar on April 27, 2021, or about 3 per cent lower than levels in mid-March. The rupee has fallen over 15 per cent since January 2018, Moody’s said in a note.
“Most companies have protections to limit the effect of currency fluctuations. These include natural hedges, where companies generate revenue in US dollars or have contracts priced in US dollars; some US dollar revenue and financial hedges; or a combination of these factors to help limit the strain on cash flow and leverage, even under a more severe deprecation scenario,” said Annalisa Di Chiara, Senior Vice-President.
Rupee extends gains for second day; closes up by 7 paise at 74.66 against dollar
As a result, weaker credit metrics under a scenario in which the rupee depreciates a further 15 per cent against the dollar can be accommodated in the companies’ current rating levels.
Covid impact
Moody’s observed that refinancing risk associated with US dollar debt over the next 18 months also appears manageable, as most companies are well-known in the markets as repeat issuers and others are government-owned or government-linked entities with good access to the capital markets.
The agency noted that India is reporting new record daily increases in coronavirus infections, prompting new lockdowns and restrictive measures to curb the spread of the pandemic and raising concerns on their impact on the country’s pace of economic recovery.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.