Recent asset sales by domestic companies is set to support their credit profiles, given the substantial lowering of debt. In the past 18 months, 21 companies have announced 36 deals to divest assets and sell equity to strategic partners to raise Rs 80,000 crore, which is nearly a fifth of their debt.

Research agency Crisil is of the opinion that expected policy reforms and a buoyant capital market should lead to more such transactions. Based on interactions with several corporates, Crisil expects companies to raise another Rs 60,000 crore in 2014-15.

Pawan Agrawal, Senior Director, Crisil Ratings said: ``The increasing trend to divest assets and raise equity is a part of corporates’ efforts to surmount the tough phase of the economic cycle. They are now refocusing on core businesses and striving to improve their balance sheets.''

In the early part of this decade, expansions and diversifications were funded primarily through debt. Over the past three years, the total debt of these 21 companies increased by nearly 50 per cent to Rs 4.4 lakh crore as on March 31, 2014.

“However, a slowing economy and rising interest rates meant operating profit stagnated at just 2 per cent during the period. Consequently, asset sales became necessary to cushion the pressure on balance sheets. Companies have also reworked long-term strategies by exiting non-core businesses and divesting overseas assets”, the CRISIL added.

"This should provide greater confidence to their lenders. As the economy picks up, these companies will be in a better position to benefit from emerging opportunities, as compared to the ones that are yet to begin this journey,'' said Agrawal.

The Crisil analysis shows nearly 60 per cent of the total divestment of assets was by companies operating in the infrastructure sector such as power, roads and oil and gas. Further, a good 60 per cent of the transaction value also related to non-core sectors, as well as overseas assets acquired during the economic upturn in a bid to diversify geographically.

With risk appetite improving, global investors have been seeking good quality, cash generating Indian assets, and the Crisil note said were involved in a quarter of the transactions by value.

However, the extent of improvement in corporate credit profiles would be limited, because asset sales also reduce operating cash flows, noted Manish Gupta, Director, Crisil Ratings.

"More than 90 per cent of completed transactions involved cash generating assets. Even after asset and equity stake sales, the debt-to-EBITDA multiple of these companies is expected to improve only marginally from nearly 9 times as on March 31, 2014, to just below 8 times over the next one year. This underscores the importance of further asset sales,'' he added.

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