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Rating woes haunt India Inc

business Updated: Apr 01, 2009 22:57 IST

The credit ratings of Indian companies are slipping as they face a slowing economy and falling investments. The rating firm CRISIL on Wednesday said that it has downgraded 84 companies while upgrading only two during 2008-09, as against 14 downgrades and nine upgrades in 2007-08.

After three default-free years, the rating agency also registered 13 defaults in 2008-09. The modified credit ration (MCR), which is a ratio of ‘upgrades plus reaffirmations’ to ‘downgrades plus reaffirmations’, hit a 10-year-low at 0.86 times. The previous low for CRISIL’s MCR was in 1998-99, at 0.61 times.

Though stronger balance sheets saved manufacturing and financial sectors from steeper decline in MCR, the rating agency predicted further decline in credit quality in its October 2008 six-monthly analysis of its rating actions.

“Over the past six months, the pace of downgrades has clearly accelerated. Moreover, as on March 31, 2009, 13.8 per cent of
CRISIL’s long-term ratings had negative outlooks, the highest since CRISIL introduced rating outlooks in 2003,” said Roopa Kudva, managing director and CEO, CRISIL Ltd. She hinted at economic deceleration causing more downgrades over the next 12 to 18 months, unless fiscal and monetary measures show results.

Of the 84 entities whose ratings were downgraded in 2008-09, 15 were from the automobile and automotive ancillaries industries, 14 from the financial sector, eight from the textiles industry, and seven each from the metals and mining industry and the construction and real estate industry. The report noted that around 68 of the 84 downgrades were driven either by lack of access to adequate funding, or by a sharp decline in demand, or both.

“Most entities that defaulted on their debt obligations in 2008-09 did so after facing a severe strain on their working capital positions because of the economic slowdown,” said Ajay Dwivedi, director-ratings of CRISIL Ltd.