The Hindu Business Line : Crisil records more upgrades than downgrades

FOR the first time in years, major credit rating agency Crisil has recorded more upgrades than downgrades, a trend that is said to reflect an improvement in the country's business environment.

The upgrades-to-downgrades ratio recorded by the agency stood at more than 1 in 2003-04, up from about 0.9 recorded in the previous fiscal. There were 14 long-term ratings upgrades in all, compared to five downgrades during the year.

A combination of factors affecting the companies rated by Crisil has resulted in the trend, said Ms Roopa Kudva, Chief Rating Officer, adding that these companies have gained from increased operational efficiencies, greater downsizing, higher demand and low interest rates.

"We have seen positive news flowing from three key areas - manufacturing, infrastructure and financial services. The quality of credit has improved and more investments have taken place," she noted. In manufacturing, for instance, marked changes were noticed in industries such as steel and automobiles.

The commodities sector too reported critical progress on these fronts, riding mainly on higher prices. Commodities, incidentally, threw up quite a large number of upgrades - Coal India, SAIL, Tata Steel, Gujarat Gas and Essel Mining. And in financial services, there was a perceptible step-up in profitability, especially because of lower cost of funds.

For the record, Crisil's `modified credit ratio' (that is, the ratio of upgrades-plus-reaffirmations to downgrades-plus-reaffirmations) for bond ratings was 1.05 in 2003-04 vis-a-vis 0.9 in fiscal 2003. Incidentally, the five downgrades included Hindustan Copper, whose rating did not hold continuously for the entire year.

"Going forward, Crisil expects many of these trends to sustain. We are likely to see stronger balance sheets and more investments by a number of players," Ms Kudva told Buisiness Line. The agency, she added, also expects to look at rating mandates from other emerging and non-traditional avenues.

It may be mentioned here that the modified credit ratio for long-term ratings has been looking up since 1999, although there was a dip in 2002. As for FD ratings, the relevant ratio has gone up, from 0.96 in 2002-03 to 1.1 in 2003-04. There were a dozen FD upgrades as against just three downgrades.

Upgrades of long-term ratings included those for SAIL (from BBB to BB) and Arvind Mills (from D to BBB-). Tata Steel, L&T and Gujarat Gas were upgraded from AA+ to AAA. FD ratings of SAIL and Saw Pipes were upgraded as well.

The five long-term ratings that were downgraded included two defaults - Hind Copper and Shamken Multifab.

The others were NIIT (slowdown in software services), Escorts (liquidity concerns) and Excel Industries (weakening financials). Competitive pressures resulted in the FD downgrades: Bata, EIH Ltd and Sai Service Station. All three were one-notch modifications.

ICRA, too, notes similar developments: The country's No 2 rating outfit, ICRA's experience is not too dissimilar from Crisil's. According to Mr P.K. Choudhury, MD, the agency has also recorded more upgrades than downgrades last year. It now expects its ratings to remain fairly stable in the months ahead.

"We are not likely to witness a sudden increase in downgrades," he said, adding that upgrades have indeed happened in segments such as manufacturing and banking. The absolute numbers, however, are not readily available.