Mumbai: Even as new reforms get rolled out and the economy sees an uptick, barring renewed inflationary risks, India Inc, particularly its debt-stressed companies, will continue to face an extremely tough year ahead. A rating agency report on Tuesday warned that 240 of the top 500 borrowers among Indian companies, listed and unlisted, will find it extremely difficult to re-finance their debt obligations arising in current financial year (FY17).
These 240 companies, according to India Ratings and Research, face debt obligations to the tune of Rs 2,28,000 crore in FY17, about 60 per cent of which they would have to resort to refinancing.
Of these, 83 firms, which were already in the stressed or default category, faced a debt obligation of Rs 1,01,000 crore in FY17. Their collective total outstanding debt stood at Rs 5,10,000 crore. The remaining 157 companies, which were in the elevated risk of refinancing category, faced debt obligations of Rs 1,27,000 crore in FY17, out of their collective outstanding debt of Rs 6,72,000 crore. Together, these 240 high-risk firms would need to seek refinancing to the extent of Rs 1,37,600 crore.
Siddhartha Khemka, head of research at Centrum Broking, said companies facing refinancing risks are likely to pay higher interest rates and provide more collateral. Interestingly, the India Ratings report noted “The median credit metrics for the elevated risk of refinancing (ERR) category have deteriorated over FY11-FY16 and public sector banks are rationing credit due to mounting losses and capital constraints.”
The rating agency conducted a sectoral break-up, which indicated “a significant concentration in leveraged sectors such as metal and mining, infrastructure and construction, oil and gas, power, real estate and telecom contributing 65 per cent to the total debt and 53 per cent to the total refinancing requirement.”
The 260 firms, which were not exposed to significant refinancing risks, had a total collective outstanding debt of Rs 16,30,000 crore of which Rs 3,04,000 crore would be due for servicing in FY17. But of the debt obligation of Rs 3,04,000 crore, the firms would face the need to refinance only about 22 per cent, or Rs 69,000 crore.
As per the India Ratings report, which covered unlisted companies along with listed companies, the leading sectors with the largest refinancing requirements in FY17 were metal and mining, real estate, infrastructure and construction, power, shipping, cement, textile and telecom.
A chief financial officer of a leading power company, who did not want to be named, said, "firms are facing problems with refinancing debt as liquidity is getting tighter. Banks are becoming tough as they are not willing to budge on the terms, making things difficult for companies."
A Mukherjee, financial advisor to a large public sector power utility, said, “when it comes to power sector the capacity planning for the sector is actually done without taking into account the demand position properly.
As a result there is surplus capacity. The all India plant load factor (PLF) is around 60-62 per cent, which should have ideally been 80-85 per cent. This means there is idle capacity to the tune of 20-25 per cent. As per our calculations, one can recover one's investment with a PLF of 80-85 per cent. Secondly, despite promises from Coal India over increasing its production, imports are continuing, putting additional burden on cost.
As a result, return on equity and depreciation cost also remains unrecovered. Normally one repays loan through these recoveries. Unless demand picks up significantly in the year to come, debt servicing and loan repayment will be a huge problem.
India Ratings said in its report that 415 companies, or 83 per cent of the 500 companies, had an outstanding rating by credit rating agencies.
“Of these, 296 entities are in the investment grade on the domestic scale (‘BBB-’ and above), 36 entities or 7 per cent are in sub-investment grade (BB+ and below) and 83 entities (17 per cent) are in default category, rated C or D by rating agencies,” the report said.
India Ratings also estimated there would be a shortfall funding requirement of Rs 60,000 crore, over and above the debt refinancing requirement of Rs 2,10,000 crore, to meet operational cash shortfalls during FY17.
FC Research Bureau analysed the debt levels of the listed universe. We found that excluding the banks and finance companies, about 300 of the 500 firms in Nifty 500 index, had positive net debt positions as of the end of FY16 and their collective net debt stood at Rs 21,60,000 crore.
(This story originally appeared on Financial Chronicle)
