Half of top 500 companies face refinance risk this year: report

Mumbai: Nearly half of the top 500 corporate borrowers are exposed to significant risks of refinancing Rs 1.4 trillion debt this year, warns a report.

"As many as 240 of the largest 500 corporate borrowers, contributing Rs 11.8 trillion to the total debt of Rs 28.1 trillion corporate loans, are exposed to significant risks of refinancing worth Rs 1.4 trillion debt this year," India Ratings said in a report on Tuesday.

The report has listed these 240 entities into elevated risk of refinancing (ERR) and stressed (already in default) categories. It said nearly Rs 5.1 trillion debt falls under the stressed category and another Rs 6.7 trillion is under ERR.

The agency said around 80 per cent (Rs 1.7 trillion) of the refinancing requirements this year stems from 100 entities, out of which 39 entities with a debt of Rs 52,700 crore belong to the stressed category and 33 companies with a debt of Rs 60,000 crore belong to the ERR category.

"The entities in the ERR category whose total asset coverage ratio or interest cover ratio are below 1x will face difficulties in debt refinancing, given banks' (especially public sector banks) risk aversion to such stressed assets and capital unavailability," the report said.

The agency further said entities in the HER (high ease of refinancing) and MER (medium ease of refinancing) categories (52 per cent of total debt) have refinancing requirements of Rs 15,300 crore and Rs 55,700 crore, respectively, for the year.

These entities would gain a competitive advantage with improvements in domestic demand because of their stronger operating profitability, positive cash flows, and larger cash and liquid investments than those of the ERR and stressed category corporates.

"These entities have stronger business and financial profiles, additional collateral or parental or group support to manage repayments as well as plan for the next phase of growth capex and investments and acquisitions," it said.

Most of these entities, however, are unlikely to venture significantly into growth capex before second half of 2018-19, it added.

The report said capital intensive and commodity-linked sectors are primarily in the stressed and ERR categories and would continue to pose risks to creditors during the course of this fiscal.

The sectoral break-up of refinancing required indicates a significant concentration in leveraged sectors such as metal and mining, infrastructure and construction, oil and gas, and power and telecom, which together contribute 60 per cent to the total debt and 47 per cent to the total refinancing requirement, the report said.

It said the banking sector's exposure to the ERR (24.9 per cent in 2014-15, 26.8 per cent in 2011-12) and stressed groups (18.7 per cent in 2014-15, 19.5 per cent in 2011-12) has grown at a muted level since 2011-12, while the exposure to HER (31.2 per cent, 29.7 per cent) and MER (25.2 per cent, 24 per cent) categories has increased.

"The ERR and stressed category corporates continue to have a high dependence on the domestic banking system. Given their weak credit metrics and negative free cash flow, their ability to access domestic capital markets or tap foreign currency markets is limited," the report said.

It further said the top 10 mutual funds houses have an exposure of Rs 67,000 crore in the top 500 corporates. The exposure in the ERR category is 4 per cent and in the stressed category is negligible at 0.3 per cent, while it is significant in the HER (45 per cent) and MER (51 per cent) categories.