India Inc's credit profile strongest in FY17, unsafe corp debt below 10%

Of total securities, 90.3% of issues worth Rs 16.88 lakh crore were rated 'investment grade'

India Inc's credit profile was at its strongest last financial year (FY) with less than 10 per cent of the corporate debt securities rated as unsafe for investment — the lowest level so far for such issues.

Credit rating agencies (CRAs) rated a total of 1,204 long-term corporate debt securities worth Rs 17 lakh crore in 2016-17, according to the latest data compiled by the Securities and Exchange Board of India (Sebi).

Of these, a majority 1,087 issues (90.3 per cent) worth Rs 16.88 lakh crore were rated "investment grade".

Accordingly, only 117 corporate bonds representing 9.7 per cent of the total corporate debt issues were assigned a "non-investment grade" in the last FY. These issuances were worth Rs 12,714 crore.

An analysis of the Sebi data showed that this is the first time that less than 10 per cent of the total issues were assigned 'non-investment grade' rating for corporate debt securities so far in India.

Nearly 21 per cent of the total debt issues were found to be of non-investment quality during fiscal 2008-09. Following this, the credit profile of companies for such issues witnessed continuous deterioration.

In 2009-10, nearly 50 per cent of the corporate bond issues were found to have the highest risk for defaults, which increased to 57.6 per cent in 2010-11.

During FY12 and FY13, over 60 per cent of the issues were found to be unsafe for investments — the highest recorded levels. Besides, over 55 per cent issues were classified under non-investment grade by CRAs in 2013-14.

The number of non-investible issues began to dip in 2014 -15 when it stood at nearly 39 per cent. The number of low-quality issues plunged to 11.16 per cent in 2015-16 and have dropped further in the FY gone by.

CRAs assign 'non-investment grade' to low-quality bonds that face the highest risk of default. Good quality bonds can be categorised under highest safety (AAA), high safety (AA), adequate safety (A) or moderate safety (BBB).

During 2016-17, 1,087 debt issues had investment grade ratings with highest to moderate safety profile.

These included 418 debt issues worth Rs 3.09 lakh crore with 'high safety (AA)' and 244 issues (Rs 13.08 lakh crore) with 'highest safety (AAA)' ratings.

While 252 issues (Rs 61,125 crore) were assigned adequately safe (A), 173 issuances (Rs 10,268 crore) were classified under BBB category during the last FY.

As per the process followed by credit rating agencies, the assigned rating is communicated to the issuer for acceptance. In case the issuer does not find the rating acceptable, it can appeal for a review.

The rating agencies registered in the country include Crisil, India Ratings and Research (formerly Fitch Ratings India), Icra, Credit Analysis and Research (CARE), Brickwork Ratings India and SMERA Ratings.