Covid-19: 1,700 mid-size companies need debt restructuring, says CRISIL

Over 1,700 sub-investment grade mid-size companies (those with turnover of Rs 300-1,500 crore) will need debt restructuring to withstand the Covid-19 onslaught, said CRISIL Ratings on Monday.

A total of 1,754 sub-investment grade firms (BB+ or lower) and 589 investment grade entities (BBB- and above) had opted for moratorium on repayment of dues during March-August 2020. The average debt size of these companies in CRISIL’s rated portfolio, excluding outliers, is around Rs 25-30 crore.

Five sectors — power, gems and jewellery, packaging, hotels, auto component and auto dealers — accounted for over 99 per cent of firms that opted for a moratorium.

Sub-investment grade companies were grappling with a slowing economy even before the pandemic hit. The moratorium, announced by the Reserve Bank of India (RBI) in March, provided much-needed liquidity support and prevented a sharp weakening of their credit profiles. But a nationwide lockdown announced in March-end severely curtailed business activity in the first quarter of this fiscal year, crimping cash flow of firms.

The rating agency said the investment grade entities took recourse to the moratorium to build a liquidity cushion for exigencies in the near term.

Subodh Rai, senior director, CRISIL Ratings, said a majority of those with lower resilience have availed of the moratorium, while few among the more resilient ones have done so. Resilience is the ability of a sector to sustain the revenue impact of Covid-19 and bounce back to full production after the pandemic peters out.

While the moratorium window closed on August 31, debt restructuring under the RBI's framework can play a crucial role in supporting the credit profiles of mid-sized companies.

The outlook in most sectors remains muted. In particular, companies falling in the low resilience sector will continue to remain under stress over the next two to three quarters.

To support companies impacted by the Covid-19-induced slowdown, the RBI has introduced a one-time debt restructuring plan. Taking timely recourse to this facility can help companies manage their cash flows that, in turn, will provide support to their credit profiles, CRISIL added.