Crisil downgrades 84 cos in FY09, upgrades two

Rating agency Crisil has downgraded 84 entities, while only two companies were upgraded in the financial year ended March 31, 2009, following the impact of a economic slowdown and a downturn in investment environment.

In comparison, the rating agency had downgraded 14 entities and upgraded 9 during the corresponding period a year ago.

Of the 84 entities that were downgraded in 2008-09, 15 were from the automobile and automotive ancillaries industries, 14 from the financial sector, 8 from the textiles industry, and 7 each from the metals, mining, construction and real estate sectors, Crisil said in a release today.

As many as 68 of the 84 downgrades were driven either by lack of access to adequate funding, or by a sharp decline in demand, or both.

In October 2008, Crisil had highlighted that three macro factors would be the most significant drivers of credit quality over the near term.

These are access to funding at reasonable rates, intensity of the demand slowdown, and movements in foreign exchange rates. These factors continue to be key drivers of Indian companies’ credit quality, it added.

Moreover, there were 13 defaults during the year, as against no defaults during the previous three years, while it had outstanding ratings on about 1,600 entities (up from 400 a year ago), the release said.

Crisil’s modified credit ratio (MCR) touched a 10-year low in 2008-09 at 0.86 times, declining from 0.97 times for 2007-08. The previous low for MCR was in 1998-99, at 0.61 times.

However, the intensity of decline in MCR between 2004-05 and 2008-09 has been less severe than that of the decline between 1995-96 and 1998-99. This is because both manufacturing and financial sector entities have much stronger balance sheets this time around, to support their credit quality.

“The present trend of downgrades outnumbering upgrades began as far back as the financial year starting April 2007. Over the past six months, the pace of downgrades has clearly accelerated. Moreover, as on March 31, 2009, 13.8 per cent of Crisil’s long-term ratings had negative outlooks, the highest since the agency introduced rating outlooks in 2003,” Crisil Managing Director and CEO Roopa Kudva said.