Top rated companies want to delay loan repayment

MUMBAI: In an indicator of the industry’s cash flow problems, a number of blue chips, a couple of Triple-A-ranked companies and those belonging to top business groups have sought relief in loan repayments. The fact that these companies have availed themselves of an RBI-authorized moratorium, whereby borrowers must repay all fees in June 2020, is seen as an indication that they are not generating enough cash during the Lockdown.

rating agency ICRA has published a list of 328 companies that have used or sought payment relief from lenders or investors, and where approval was received either after the due date or is pending receipt. The companies that have tried to postpone repayment include triple-A classified companies as ONGC’s subsidiaries MRPL and ONGC Petro Additions.

Others include Tata Group companies such as Tata Power and Tata Power Renewable Energy and a joint venture of Tata GVK Hotels. JSW Steel, Vedantas Bharat Aluminum Company. Hindustan Copper. Piramal Enterprises and Hadia Petrochemicals are other double-A-ranked companies.

“Missed payments from these entities, even in the event of pending formal approval by the lending institutions before the original due date, are not considered a default. Non-recognition of breach in these cases is according to the guidance of the above Sebi circular. However, it can be noted that for those entities that do not yet receive approval of the moratorium from their lending institutions, if the same is not received in a timely manner, ICRA will review its position on standard approval, “ICRA said.

Most of the companies are rated between A and BBB. Future Business Resources, Oswal Overseas, Jain Farm Fresh Foods and Urban Edge Hotels are the four ‘C’ (underinvestment) rated companies. Bankers say that in many companies, the top line has disappeared in April 2020 due to the expanded closure.

Some companies such as airlines and hotels do not see sufficient cash flow to meet repayment obligations. This would mean that if there is no loan restructuring scheme in place by June 2020, many companies will find it difficult to meet their repayment obligations. If RBI allows restructuring, without having to classify the loan by default, the banks would be able to reduce the cost of funds for existing borrowers.

Given the expansion of the shutdown in India, we expect the risk of asset quality to increase further, especially in selected sectors and for SMEs. Based in part on UBS ‘non-performing loan (NPL) analysis of credit rating ratings, we believe that banks’ BBB rated portfolios may also face NPL headwinds. In our downside scenario, we expect significant de-rating risks due to increased credit quality risks, ”UBS said in a report on Indian banks.

Source link