Coronavirus impact: India Inc focuses on preserving liquidity amid lockdown

Reputed conglomerates are opting for moratorium on debt servicing

In an indication that India’s high-rated companies are preparing for the long haul, they are opting for a moratorium on debt servicing. Experts say the focus is on preserving liquidity as there is uncertainty over the duration and impact of the 21-day nationwide lockdown imposed to check the spread of Covid-19.
 

The list of companies opting for the moratorium includes those that are part of reputed conglomerates and enjoy relatively higher financial stability. Tata Power, for instance, plans to accept the moratorium. “We will be availing of the moratorium offered by banks extending the period by three month for repayment of loan and interest cost,” Tata Power told Business Standard on Thursday.
 

The Reserve Bank of India (RBI) allowed lending institutions to offer a moratorium of three months to borrowers on the payment of term loan installments due between March 1 and May 31 with continued interest accrual during this period. This was done to help borrowers — companies and individuals — to cope with the financial disruption caused by Covid-19 and the lockdown.
 

“We are seeing even high-rated companies accept the moratorium to preserve liquidity, some of these are subsidiaries of big conglomerates,” said Ratnam Raju, associate director, group head of infrastructure and project finance at CARE Ratings.
 

Executives from the rating industry, who have been receiving notifications from companies, say some companies with ratings as high as ‘AAA’ are also accepting the option. Companies enjoy a higher rating for their capabilities to service debt in a timely manner.
 

For JSW group, a few companies in the group have accepted moratorium as per industry sources but a senior company official said "not true fully" indicating not the entire group on all facilities from all banks.
 

There are some outliers. Larsen & Toubro, according to a top official, will not opt for the moratorium. A spokesperson for Aditya Birla Group did not offer any immediate comment on whether group companies would opt for the moratorium.
 

A query to the Adani Group remained unanswered, an executive for its transport subsidiary, however added, “The company has not yet taken any disbursements from banks for its road and water projects”.
 

Rating executives say the uncertainty is driving companies to accept the higher cost of borrowing (as interest may compound). One executive pointed out that a company with Rs 2,100 crore cash on its books was also accepting the moratorium.
 

“Slightly higher cost of debt is of a lesser concern, more important is to maintain sufficient liquidity,” said Rajat Bahl, chief ratings officer, Brickwork Ratings. He said the number of companies opting for it was going to be in the hundreds if not thousands.
 

In terms of business, most feel those dependent on periodic rentals are more inclined to accept the moratorium. “Companies with an exposure to monthly rentals like commercial real estate as well as toll companies are also opting for it. The focus currently is to hold on to liquidity,” said Shubham Jain, senior vice-president and group head, Icra.
 

In addition, companies operating in sectors like airlines and hospitality — worst hit by Covid-19 — are also opting for the pause. “Revenues for these sectors have already been impacted. In sectors like power generation, companies are opting for it (moratorium) and are looking at conserving cash. This is across the spectrum — public and private sector. No one knows when this logjam will end and most want to keep more liquidity than normal,” said Sachin Gupta, senior director, CRISIL Ratings.