Downgrades in Crisil-rated cos touch all time high in FY16

Crisil Ratings Monday said weakness in metals and infrastructure sectors led to the quantum of downgraded debt reaching a record high at Rs 3.8 trillion in 2015-16 and the just-started fiscal is unlikely to witness any improvement in the situation.

"The pain is still not over. Even in FY17, we will see pressure in credit quality especially due to the weakness in the infrastructure and metals sectors," the domestic credit rating agency's senior director Somasekhar Vemuri told reporters on a conference call.

The number of companies downgraded moved up to 1,177 from the year ago's 902, while the debt rated credit ratio slipped to three-year low of 0.31 percent as against 0.62 for 2014-15, the agency said.

A bulk 755 downgrades came in the second half of the fiscal, which also saw 575 upgrades. Over 60 percent of the downgrades were because of business risks while the rest came from weak financials of the companies.

Chief analytical officer Pawan Agrawal said companies in the metals and infrastructure are the ones under pressure due to external factors like depressed prices, over leveraging and difficulties to raise capital, while the consumption oriented ones like auto, auto ancillaries and pharma companies are doing good.

On the outlook for 2016-17, he said, "We do not expect much of a material change" as the detrimental conditions are likely to continue.

He said the ability of the government to push through the reforms, ability of the corporates to deleverage their balance sheets through the sale of non-core assets and progress of the monsoon are the things to watch out for in the recently started fiscal 2016-17.

The troubled metals and infra space accounted for half of the Rs 3.8 lakh in debt downgraded in 2015-16, it said.

There were 265 defaults involving loans of Rs 53,000 crore by Crisil rated companies in the fiscal --- the highest in nearly three hours --- and over 80 per cent of the amount came from a single company.

Vemuri said the agency expects loan slippages for banks to continue to remain reasonably high in 2016-17 as well, adding that even though the ratio may seem lower at 4.1 percent as against the 5.2 percent expected in 2015-16, it is still very high.

The agency, however, said that its portfolio was stable as only 99 of the 1,000 ratings in the categories A and above were downgraded. Even in those, 95 percent were just by one notch, Vemuri added.