Comments
Moody's Investor Service has cautioned that a sustained weakening of rupee would be credit negative for its rated Indian companies, particularly those that generate revenue in rupees but rely on US dollar debt to fund their operations and have a significant dollar-based costs, including capital expenses.
The Indian rupee hit a new low of INR72.1 to the US dollar on Thursday, and has now weakened around 13 per cent since the beginning of 2018, the global credit rating agency said.
"Nevertheless, most rated Indian-based corporates have protections in place -- including natural hedges, some US dollar revenues and financial hedges -- to limit the negative credit implications of a potential further 10 per cent weakening of the rupee to the US dollar from Thursday's rate," says Annalisa DiChiara, Moody's Vice-President and Senior Credit Officer.
Moody's has ratings on 24 non-financial Indian corporates, including those in the IT, oil and gas, chemicals, automobiles, commodities, steel, and real estate development sectors.
"Furthermore, the impact of the rupee's weakening will be diverse and will also depend on issues such as a particular corporate's reliance on exports, its cost base, and its exposure to pricing on international markets," says DiChiara.
According to an earlier survey by Moody's, most rated companies have protections against their exposure to US dollar debt, which considered the effects of a weakening of the rupee to around INR78 to the US dollar.
Weaker credit metrics -- under a scenario of a further 10 per cent drop in the value of the rupee from the rate on September 6th -- can be accommodated in the companies' current rating levels, according to the Moody's report.
Furthermore, refinancing risks associated with the companies' US dollar debt maturing over the next 12 months is manageable. Of the 24 Moody's rated Indian-based corporates across the high-yield and investment grade categories, 12 generate most of their revenue in US dollars or have contracts priced in US dollars, providing a natural hedge.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.