Watch out for firms in foreign debt holes: Sebi to rating agencies

Regulator meets officials of rating agencies to talk credit environment

The Securities and Exchange Board of India (Sebi) has asked rating agencies to keep a close watch on companies with high foreign borrowings. On Wednesday, Sebi officials met senior officials of seven credit-rating agencies, following a spate of recent downgrades that have hit the Rs 13-lakh-crore domestic mutual fund sector.

Sources said Sebi asked rating agencies to monitor closely companies that have raised loans through foreign fund-raising instruments such as external commercial borrowings and foreign currency convertible bonds. It also sought to know how much of their foreign-exchange exposure was hedged, as well as the impact of the recent rupee depreciation on them.

Before China devalued its currency in August, the rupee was stable for a fairly long period, which resulted in many companies opting for foreign-currency loans. Earlier this month, the rupee fell to a near two-year low against the dollar, owing to a sharp sell-off by foreign investors.

“The rupee is vulnerable to action taken by the US central bank (Federal Reserve) and China. Any adverse move on these fronts might see Indian companies with high foreign-currency exposure being hit badly. That could lead to a chain reaction. All stakeholders should remain alert,” said a source.

According to a recent analysis by Business Standard, the borrowings of Indian companies have grown at a compound annual rate of 16 per cent since 2008.

The regulator also sought information about the current credit environment and the trends on upgrades and downgrades. It also discussed the fact that credit profiles were affecting the corporate bond market and the fund sector.

Sebi has been exercising caution following the downgrade of the Amtek Auto paper, which forced JPMorgan Mutual Fund to restrict redemptions in two of its schemes that had exposure to the debentures of the automobile parts manufacturer.

Earlier, this month the regulator sought details from mutual fund houses about their exposure to risky paper. It also sought a report on the assets under management of schemes with exposure to paper recently downgraded.

The meeting was attended by officials from rating agencies, including CRISIL, ICRA, CARE Ratings, and India Ratings.

The domestic mutual fund sector has debt assets worth Rs 9 lakh crore, a third of which is corporate debt.
REGULATOR ON THE ALERT

• Sebi wants rating agencies to keep a close watch on companies with foreign-exchange (forex) loans
• Sebi is trying to ascertain how much of their forex exposure was hedged
• Sebi has been exercising caution following the downgrade of the Amtek Auto paper
• Before China devalued its currency in August, the rupee was stable for a fairly long period, which resulted in many companies opting for foreign currency loans
• Earlier this month, however, the rupee fell to a near two-year low against the dollar