Indian firms require Rs7 trillion equity infusion to deleverage: India Ratings
It will be hugely challenging for these corporates to improve their leverage levels even moderately, says agency
Mumbai: India’s top 500 corporate borrowers have the worst credit metrics since the 2003-04 fiscal, according to India Ratings and Research Pvt. Ltd, a Fitch group firm.
The credit rating agency said on Wednesday that it will be hugely challenging for these corporates to improve their leverage levels even moderately.
If the current level of borrowings is to be reduced to levels seen in the 2010 and 2011 fiscal, given that the economy grows at the rate observed between 2005 and 2008 fiscal, the process is likely to take two-and-a-half to three years, India Ratings said in a report.
“However, raising this amount of equity would be a significant challenge given that between 2008 and 2014 fiscal, less than half of this amount was infused as equity across these 500 corporates," the report said.
Indian corporates have faced a lot of flak from international agencies given the high debt on their books. According to the International Monetary Fund’s Global Financial Stability Report released in October, Indian firms have the highest leverage (total debt to total equity) and lowest debt service capacity (Ebitda, or earnings before interest, tax, depreciation and amortization, to interest expense) among Asian nations. Ebitda is an indicator of a firm’s operating profitability.
The report also added that 96 of the top 500, who are already considered as non-performing assets or are under the so-called corporate debt restructuring mechanism will take between five and 10 years to reduce their leverage to moderate levels.
“As such, 62 among them would require a minimum equity infusion of ₹ 2.41 trillion ($39 billion) so as to improve their likelihood of remaining a ‘going concern’," the report said.
This amount is well over the market capitalization of a lot of these 62 corporates and as such, equity could come in only if the current promoter-managers are changed; else these would continue to weigh down their lender’s balance sheet for a long time, India Ratings said.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!