Funding of corporate dividends by external borrowings may fall in FY17: India Ratings
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Mumbai: Improved profitability is likely to lower the funding of corporate dividends by external borrowings. According to an India Ratings and Research (Ind-Ra) report released on Tuesday, the debt component of dividend funding is likely to reduce to around Rs5,800 crore each year during fiscal 2017-18 from an average of Rs9,000 crore in 2014-16.
The rating agency said that debt-funded dividends (DFDs) as a proportion of the total dividends paid between 2017-18 may reduce to 13% from an average of 22% in 2010-16.
“This is under the assumption that debt reduction remains minimal and continues to get refinanced,” the report said.
However, Ind-Ra added that DFDs in auto, telecom, infrastructure, power and real estate sectors is estimated to increase to 77% by 2018 from 42% during 2010-16. Improved profitability of the metals and mining sector may lead to a significant decline in DFDs to 1.4% by fiscal 2018 from 44% in 2016.