Half of India’s top corporates will find it tough to refinance loans

Almost half of the top 500 corporate borrowers in the country will find it difficult to refinance some of their loans, ratings agency India Ratings (Ind-Ra) said in a report. These borrowers have taken loans amounting to ₹11.8 lakh crore, of which ₹5.1 lakh crore is already stressed while another ₹6.7 lakh crore faces elevated risk of refinancing.

The agency, the Indian subsidiary of Fitch Ratings, analysed the biggest borrowers in the country for the report. It found that 240 of the largest 500 “are exposed to a significant risk of refinancing ₹1.4 lakh crore debt in FY17”.

According to Ind-Ra, 80 per cent of FY17’s refinancing requirements of ₹1.7 lakh crore stems from 100 entities, of which 39 (of ₹52,700 crore) belong to the stressed category and another 33 (with ₹60,000 crore) face an elevated risk of refinancing. When a company is unable to repay its loans, it negotiates a new payment schedule with the lender, by which the old loan is paid off by the new loan, which has new terms as to the interest rate and maturity period.

Ind-Ra did not name the borrowers with the highest refinancing risk. However, it listed the top 10 of the 500 borrowers by quantum.

Companies under pressure

In this list, Jaiprakash Associates has been classified as stressed debt while GMR Infrastructure faces an elevated refinancing risk. Metals and mining company Vedanta Ltd, the report said, will face medium ease of refinancing.

To rate a company’s refinancing ability, Ind-Ra looked at its EBITDA interest coverage, trends in cash flow, total asset coverage ratio, percentage of outstanding shares pledged and cash headroom.

Rakesh Valecha, Senior Director and Head, Credit Market Research, said that ₹5.1 lakh crore of stressed debt in the corporate sector roughly coincides with the declared bank bad loans of ₹5.8 lakh crore. The refinancing for this, Valecha said, is most likely to come from public sector banks.

Nine sectors account for 76 per cent of the total refinancing requirement, Ind-Ra said, which are metals and mining (15 per cent), infrastructure and construction (13 per cent), cement (10 per cent), power (9 per cent), telecom (9 per cent), shipping (7 per cent), real estate (6 per cent), and textile and sugar (4 per cent each).

However, getting the refinancing they need may prove difficult for these 240 companies, Valecha added, because it comes at a time when banks are wary of taking on additional risks.


One Thought on “Half of India’s top corporates will find it tough to refinance loans

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