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[marne.vivek]

Downgrades of corporate ratings are predominantly due to weakening liquidity, volatile rupee, and pressure on demand and profitability says the ratings agency

Ratings agency CRISIL said during the third quarter, its ratings downgrade outnumbered upgrades for the first time over past eight quarters. With downgrades continuing to exceed upgrades in the next few quarters, CRISIL said, it expects pressure on the credit quality of Indian companies to continue.

“Our downgrades have outnumbered upgrades for the first time in eight quarters. We expect pressure on the credit quality of Indian companies to continue, with downgrades continuing to exceed upgrades in the next few quarters. High interest rates and sharp movement in currency value have added to the list of woes that India’s corporates face,” said Ramraj Pai, director, CRISIL Ratings.

The ratings agency said its rating action ratio (RAR), an indicator of the relative frequency of upgrades to downgrades, declined to 0.99 times in the third quarter from 1.11 times for the corresponding quarter past year. A third of the downgrades were caused by pressure on demand or profitability. Another third of the downgrades was the result of weakening liquidity, either on account of stretched working capital requirements or large capacity expansions; liquidity has emerged as a key monitorable for CRISIL in its ratings of entities.

CRISIL said, rating upgrades, however, were driven not so much by industry-wide factors, as entity-specific ones—including equity infusions by promoters resulting in correction in capital structure, and stabilisation of new capacities, which were earlier in project-implementation phase.

According to Mr Pai, corporate India continues to face challenges both in the domestic market, where there has been a slowdown in the economy and in infrastructure activity, and on the export front, with uncertainty looming large in Europe.

CRISIL’s estimates indicate that foreign currency debt of about USD17 billion will come due for repayment in the next 18 to 24 months. Refinancing the debt may be difficult because global investors have become increasingly risk-averse, given their uncertain economies back home, the ratings agency said.

Source: Moneylife

[vinay28]

the condition of the ratings agencis can be judged from the fact that, as an informed guy told me, they have rated many many more firms than before, not bothering about size or quality of those firms, just to increase their accrual.

they too have gone the way of ISO auditors, ignoring lapses, which 10 years ago they wouldn't have tolerated, just to survive.