Refinancing risk to India Inc with debt in foreign currency, says Moody's

Moody’s sees some of its India’s large corporates with foreign currency debt facing refinancing risk in calendar year 2024 (CY24).

This would be owing to a combination of higher interest risk in the international financial market and a likely deterioration in their finances.

“Nearly $8 billion worth of corporate debt issued by Indian corporates is maturing next calendar year and needs to be refinanced. Majority of these debt securities are in the high-yield and speculative-grade categories that expose them to refinancing risk,” said Vikash Halan, associate managing director Moody's Investors Service.

Vikash was speaking on Tuesday at a Moody’s and ICRA media briefing on the theme ‘Will India thrive amid global headwinds’. 

According to him, the refinancing risk is only for corporates with credit rating of B3 and lower under Moody’s credit rating scale.

Moody’s currently rates 22 corporates from India with a combined debt of $212 billion and total revenues of $668 billion at the end of March this year. Of this, 12 corporates have investment-grade ratings. They include Tata Consultancy Services, Reliance Industries, Oil & Natural Gas Corporation, Bharat Petroleum, Indian Oil, Bharti Airtel, Ultratech Cement and UPL Corp.

Some large companies with speculative-grade credit rating include Tata Chemicals, JSW Steel, Tata Steel, Tata Motors, HPCL-Mittal Energy, Vedanta Resources Plc (holding company of Vedanta Group), ANI Technologies (holding company of Ola cabs) and Oravel Travel Stays (holding company of Oyo Hotels). Out of this, three corporates — ANI Technologies, Oravel Travel Stays and Vedanta Resources — are rated B3 and below that puts them at the maximum refinancing risk.

Some big speculative-grade corporate bonds and securities that are maturing in CY24 include Vedanta Resources $1-billion bond due in January 2024, Vedanta’s $1-billion bond due in August 2024 and JSW Steel’s $500-million bond due in April 2024. They also include Tata Motors Holdings $300-million bond due in June 2024, Tata Steel’s $1-billion bond due in July 2024 and Tata Motors $250-million bond due in October 2024.

Vedanta Resources has the lowest credit rating at Caa1 among Indian corporates rated by Moody’s.

In contrast, some of the major investment-grade bonds maturing next calendar year include Indian Oil’s $900-million bond due in January 2024, Oil India’s $500-million bond due in April 2024, Bharti Airtel’s $1-billion bond due in May 2024 and ONGC’s $750-million bond due in July 2024.

Vikash said that a failure to refinance their forex debt will force corporates to either go for bank borrowings or even default in the worst-case scenario.

“If bond holders refuse to refinance debt, post their current maturities, then corporates have the option to look for alternative funding options such as bank borrowings, including rupee-denominated debt. This can then be swapped into foreign currency at the prevailing exchange rate.”

This could, however, result in higher finance costs for the companies.