A 10 per cent rupee depreciation from fiscal year end 2016 (FY16) and a 50-basis-point hike in global interest rates could lead to deterioration in the credit profile of 75 of the top 100 non-financial foreign exchange (FX) borrowers, cautioned India Ratings.
It also said that corporates are not adequately prepared, with 64 per cent of their FX exposure unhedged.
In the event of a 10 per cent rupee depreciation in FY18, the rating agency expects three out of four corporates to be negatively impacted
These 75 corporates account for 82 per cent of the total debt worth ₹21.8 lakh crore. The aggregate net leverage of the remaining 25 corporates holding 18 per cent of the debt will improve to 3.6 times from 3.8 times at FY16.
Ind-Ra said the total FX exposure of the corporates under study stood at ₹19.5 lakh crore as at FY16 , with the aggregate hedge cover (defined as hedged FX exposure/total FX exposure) being 36 per cent.
The total exposure comprises debt of ₹8.1 lakh crore (hedged 36 per cent), and imports of ₹7.4 lakh crore (hedged 36 per cent) and exports of ₹4 lakh crore (hedged 37 per cent).
The credit rating agency believes the gross exposure of these corporates could be on the higher side than the estimated ₹19.5 lakh crore, as disclosures in the annual reports are on a net basis.
Ind-Ra said ‘AAA’ (top) rated entities have hedge cover of 31 per cent and hold 52 per cent of the total exposure of ₹19.5 lakh crore.
It added that maximum hedging preference is exhibited by corporates in the ‘AA’ and ‘A’ rating categories, where aggregate hedging is 42-57 per cent.
Corporates with default (‘D’) rating or no rating have hedge cover of 10-30 per cent. Within the rating groups, only the ‘A’ rated entities could have a positive impact from rupee depreciation.
Of the total 19 sectors forming a part of the study, 10 are highly sensitive to rupee movement, the agency said, adding that of these 10 sectors, seven will be negatively impacted and three, positively.
Among the high negatively impacted sectors, oil and gas holds the maximum FX exposure (₹9.3 lakh crore), followed by metal and mining (FX exposure of ₹2.6 lakh crore). Within the positively impacted sectors, IT services holds maximum exposure (₹75,200 crore), followed by pharmaceuticals (₹31,900 crore).
Ind-Ra observed that the widening trade deficit could intensify the impact on the credit profile of corporates unless currency risk management improves significantly.