For every upgrade of rupee debt of Indian companies since April 1 there have been about 11 downgrades, leaving this quarter set to be the worst on record if sustained, according to a review of moves by the country’s four main credit assessors — CARE Ratings, Crisil, ICRA and India Ratings & Research.
Ratings have been cut for 847 domestic firms in the period.
That’s pushing up refinancing costs, with spreads on top-rated three-year rupee company notes over similar-maturity Indian sovereign bonds rising to the highest since 2013.
The timing couldn’t be worse, as corporate finances have been stretched amid the world’s biggest lockdown to prevent the spread of the coronavirus. Companies also face a record amount of maturities in 2021, with Rs 6.3 trillion ($83 billion) of bonds and loans in local currency coming due.
“The surging pace of credit downgrades can possibly continue beyond June as the lockdown has led most of the industrial activity in the country to shut down, though a lot depends on how fast the companies are able to get back to business and the pick up in demand,” according to T N Arun Kumar, chief ratings officer at CARE Ratings. “Even if companies are able to restart businesses by the end of this quarter, it will be a very tapered recovery for most firms.”
Authorities have recently sought to boost firms’ access to the local credit market with steps including funding banks to buy company notes.
Also, the Reserve Bank of India in late March allowed lenders to give a three-month moratorium to borrowers on servicing loan obligations.
But risks have still mounted. The latest stimulus comes after Prime Minister Narendra Modi’s administration last week ramped up government borrowings for the fiscal year that started April 1.
The move has threatened to crowd corporate borrowers out of the local debt market, in the latest threat to local credit markets.