Six Indian companies out of potential fallen angels list, says Moody's

Upgrade of India outlook, easing of Covid-19 pandemic effect trigger action

Rating agency Moody’s on Monday said six India-based companies have exited the list of potential fallen angels following the change in India's outlook to stable in early October and the easing of Coronavirus (Covid-19) pandemic restrictions. Potential fallen angels are firms most at risk of losing their investment-grade ratings.

The six Indian entities which exited the list are Oil and Natural Gas Corp (ONGC), Oil India Ltd (OIL), Indian Oil Corp Ltd (IOCL), Hindustan Petroleum Corp Ltd (HPCL), Petronet LNG and UltraTech Cement. Three are government-related issuers (GRIs) namely ONGC, OIL and IOCL. All of them carry a “Baa3 stable” rating.

The easing of the Covid-19 pandemic restrictions and strengthening economic recovery support a decline in potential fallen angels among rated Asian (ex Japan and Australia) companies, the rating agency said in a statement. Moody’s had upgraded outlook on India’s sovereign rating from “negative” to “stable”.

Moody’s said it stabilised Hindustan Petroleum Corporation Ltd's (HPCL, Baa3 stable) outlook because its ratings incorporate expectation of support from the government (Baa3 stable) through ONGC. Petronet LNG Limited's (PLL, Baa3 stable) rating was also stabilized following the rating actions on key counterparties, including IOCL and Bharat Petroleum Corporation Ltd (BPCL, Baa3 negative).

Bharat Petroleum Corporation Ltd (BPCL, Baa3 negative), which is a candidate for privatisation, remains on the potential fallen angel list. The outlook on BPCL's ratings remains negative, reflecting uncertainty around its ownership, capital structure, liquidity and management control given the ongoing process by the government to sell its stake in the company.

Cement producer UltraTech Cement Limited is the sixth India-based company that left the potential fallen angels list. The company's ratings are capped at India's sovereign rating. As a result, its issuer rating was affirmed at Baa3 and changed the outlook to stable from negative, in line with the sovereign rating outlook.

As of October 31, the number of Asian companies most at risk of losing their investment-grade ratings – potential fallen angels – fell to the long-term average of 12 since 2018, from 19 as of September 30.

Annalisa Di Chiara, vice president, Moody’s, said Potential fallen angels account for around five per cent of Asian investment-grade companies, down from a high of 9.7 per cent (20 companies) during the height of the pandemic in 2020.

"The 12 potential fallen angels have around $28 billion of bonds outstanding, with around $3.2 billion due by the end of 2022," she added.

The total number of fallen angels since January 2020 is five, similar to that during the commodity crisis. And most fallen angels have remained in the high-yield space, largely in the Ba1/Ba2 category. A few have been downgraded even further. Of the 30 fallen angels in Asia since 2008, only two companies climbed back to investment grade, the rating agency said.

Refinancing would likely be more-costly for potential fallen angels if their ratings were downgraded to high yield. Moreover, fallen angels could crowd out lower-rated companies, which would raise debt-service costs and refinancing risk for weaker and highly leveraged companies.