S&P ups rating outlook of 10 firms, 11 financial entities

Close on the heels of revising India's sovereign credit rating from negative to stable, Standard & Poor's on Friday upgraded the rating outlook of 10 Indian companies. These included Reliance Industries (RIL), Tata Consultancy Services (TCS) and eight government-controlled companies, out of which four were financial firms.

The ratings agency also revised the outlooks on 11 banks and financial institutions to stable from negative. Its outlook remained negative on Indian Overseas Bank (IOB) and Syndicate Bank.

Among the state-owned companies whose ratings improved were Oil and Natural Gas Corporation, Power Grid Corporation of India, NTPC and NHPC. The financial firms saw similar action were Export-Import (Exim) Bank of India, India Infrastructure Finance Company (IIFCL), Indian Railway Finance Corporation (IRFC), and Power Finance Corporation (PFC).

S&P revised the outlook on RIL as there was less likelihood that it might lower the transfer and convertibility (T&C) assessment following the sovereign action. T&C reflects chances of the government putting restrictions on private companies to access forex reserves. The outlook on the foreign currency rating on TCS was also upped following a similar action on the sovereign.

The rating agency attributed the revision in outlook of ratings of four government-controlled companies - ONGC, PowerGrid, NTPC and NHPC - to reflect the sensitivity of these entities to the sovereign credit rating. "We expect the government to maintain its majority ownership, and influence the business and financial strategy of the companies."

Similarly, the rating outlook of EXIM Bank, IIFCL, IRFC and PFC were changed from negative to stable in sync with a similar move on the rating.

The ratings agency raised the regional scale ratings on ICICI Bank's outstanding issuances to axA- from axBBB+ and to cnA- from cnBBB+; and IDBI's outstanding issuances to axBBB+ from axBBB and to cnBBB+ from cnBBB. These rating actions reflect the outlook revision on the issuer credit ratings. It affirmed its issue ratings on the hybrid instruments of Bank of India, ICICI and State Bank of India.

The negative rating outlooks on Syndicate Bank and IOB reflect a possible weakening in these banks' asset quality and capitalisation.

It could downgrade Syndicate if the bank's asset quality deteriorates to below industry average levels or if the pre-diversification risk-adjusted capital (RAC) ratio falls below 5 per cent, which might happen if the bank grows aggressively and is unable to support growth with sufficient capital infusion.

In our view, IOB relies on large capital infusion on an ongoing basis to support its growth owing to its low retained earnings. It might downgrade IOB if the bank is unable to raise sufficient capital to support growth, such that its RAC ratio dips below 5 per cent. The agency could also lower the rating if IOB's asset quality continues to deteriorate.

RATING OUTLOOK
Companies whose outlook on ratings was revised to stable from negative

• Reliance Industries
• Tata Consultancy Services
• Oil & Natural Gas Corporation
• NTPC
• PowerGrid
• NHPC
• EXIM Bank
• India Infrastructure Finance Company
• Indian Railway Finance Corporation
• Power Finance Corporation

Financial entities whose outlook on ratings was revised to stable from negative

• Axis Bank
• Bank of India
• HDFC Bank
• ICICI Bank
• IDBI Bank
• Indian Bank
• IDFC Limited
• Kotak Mahindra Bank
• Kotak Mahindra Prime
• State Bank of India
• Union Bank of India

Ratings affirmed

• Syndicate Bank (Negative)
• Indian Overseas Bank (Negative)