Credit profiles of India Inc on the mend: S&P

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More firms sell equity, non-core assets to clean up balancesheets

Credit profiles of India Inc on the mend: S&P
Standard & Poor’s on Wednesday said credit profiles of Indian companies improved significantly as they focused on reducing debt by selling equity, non-core assets or by using free operating cash flow.

Indian firms are improving their financial leverage and boosting credit profiles by adopting several means, the global rating agency said, citing instances of big companies like Tata Steel and GMR Infrastructure, which recently sold off non-core assets to clean their balance sheets.

“The size of the measures taken and our expectation of the impact on a company’s financial ratios will determine the improvement in credit profiles,” Standard & Poor’s Ratings Services said in a report.

Tata Steel sold part of its investment in Titan Industries in 2013, has put its Borivali land up for sale and deferred Phase 2 of its Odisha Greenfield project. “We view this to be positive for free cash flow generation after the completion of Phase 1, which Tata Steel expects by March 2015,” the rating agency said. It expected the steel major to take further steps to reduce leverage.

“Besides raising equity and selling non-core assets, Indian firms are also divesting stakes in subsidiary businesses,” said S&P credit analyst Mehul Sukkawala.

GMR Infrastructure sold two of its road projects in 2014 and signed an agreement to sell 40 per cent stake in the Istanbul Sabiha Gokcen International Airport, S&P said.

“We believe this would enable the company, and others like it, to withstand the current weak economic environment and position itself well for future opportunities,” the report said.

Many other infrastructure companies with high leverage plan to sell assets or stakes in subsidiaries to improve their debt-servicing ability, financial flexibility and liquidity.

The rating agency recently revised the outlook on Tata Power to positive and raised the rating on Bharti Airtel after the companies focused on lowering debt and also in view of regulatory developments benefiting them.

Tata Power announced a rights issue of Rs 2,000 crore and sold stake in a coalmine to raise $500 million. Bharti Airtel raised $1.25 billion through an equity offering last year.

“We believe Bharti Airtel will continue to take measures like sale of stakes in subsidiaries (such as Bharti Infratel) or non-core assets (such as tower infrastructure),” the agency said.

“In our view, the companies’ main reasons for improving their financial profiles are the weak economy and high interest rates, which have adversely affected cash flow and debt-servicing ability. Another reason is, companies are refocusing on reducing debt after years of investing significantly on rapid growth,” Sukkawala said.

IDBI Bank deputy managing director BB Batra said many companies were selling non-core assets to deleverage balance sheets and, thus, creating a market for these assets. “Lanco, JP Associates are some of the companies deleveraging their balance sheets. Tata Steel is also selling off non-core assets,” Batra said.

S&P expects Indian companies to reduce debt also through positive free operating cash flows. This is because many firms have significantly reduced capital expenditure and expansion plans in the current economic environment. This is especially the case for sectors such as power, metals and mining and infrastructure that typically require high capital expenditures.

(With inputs from KR Sudhaman in New Delhi)

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