The ratio of upgrades to downgrades in ratings and credit outlooks by the local units of S&P Global Ratings, Moody’s Investors Service and Fitch Group has improved to 1.2 this quarter, set for the highest level in nearly three years, data compiled by Bloomberg show.
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“Local companies are facing fewer downgrades during the second wave of the pandemic than during the first wave as most of them have bolstered their liquidity in the past couple of quarters, thanks to all the pandemic support announced by policymakers,” said K Ravichandran, a deputy chief rating officer at ICRA Ltd, a local unit of Moody’s.
The nascent recovery in Indian firms’ credit quality adds to signs that the pandemic-hit economy may be turning a corner. Still, many investors remain cautious and are piling into bonds that compensate them with higher coupons each time the notes suffer a rating downgrade.
Primary market — busy week
Companies had sold Rs 9,420 crore ($1.3 billion) of local-currency notes as of Wednesday and plan to sell as much as Rs 5,610 crore in the remainder of the week. Issuance totaled Rs 1,300 crore last week.
In the offshore debt market, billionaire Azim Premji’s information technology unit sold its maiden dollar bond this week to tap cheaper overseas borrowing costs for refinancing debt. Wipro IT Services, a unit of Wipro Ltd, priced a $750 million five-year dollar note at +80 basis points.
Secondary market — Adani bonds
Dollar bonds issued by Adani group firms underwent volatile trading this week amid confusion triggered by a local media report that accounts of three Mauritius-based funds that own some of the companies’ shares were frozen by India’s national share depository.
Indian dollar bonds have gained 0.3% in June so far, outpacing the 0.1% rise in a broader Asian dollar bond gauge, according to Bloomberg Barclays indexes; Indian notes were the best performers among major peers in Asia last month.
Rupee borrowing costs for local firms have risen this week after India’s retail inflation unexpectedly quickened in May. Average yields on top-rated five-year corporate bonds have jumped 16 basis points to 5.98% since the week began.
Credit rating — Delhi international airport
Moody’s Investors Service last week downgraded Delhi International Airport’s rating to B1 from Ba3, citing the adverse impact of a Covid-induced drop in passenger traffic and airport revenue.
“Some sectors such as aviation and hospitality that have been struggling since the first wave continue to face challenges in the second wave. They may take longer to recover to the pre-pandemic levels of revenue,” said Abhishek Bhattacharya, an analyst at India Ratings.
Distressed debt — microfinance woes
The amount of Indian microfinance loans in arrears for over 30 days could more than double to 14%-16% of the total in June from 6%-7% in March due to the fallout from the second coronavirus wave, Crisil Ratings wrote in a note.
India’s top court refused to examine a petition that sought directions to federal government for measures to ease financial distress caused by the second wave of Covid-19 infections and local shutdowns.
Reliance Infrastructure, a member of Reliance Group, will subscribe to as much as 595 million shares of Reliance Power and a maximum of 730 million warrants convertible to equity by swapping its outstanding debt including interest of up to Rs 1,325 crore.