With the impact of Covid-19-driven lock-down becoming severe, Indian corporates are witnessing a rise in rating downgrades and revisions in outlook, mostly to negative.
One such major downgrade was announced for Tata Motors Ltd, with rating agency Fitch downgrading Tata Motors Ltd’s Long-Term Issuer Default Rating (IDR) from “BB-” to ‘B’ on significantly lower expectations for profitability and cash flow over the next few years due to the coronavirus pandemic. The Outlook is Negative.
The Covid-19 pandemic will impact demand and lead to disruption at TML’s Indian operations as well as to key auto markets globally that are served through its fully owned UK-based subsidiary, Jaguar Land Rover Automotive plc.
As a response to company and sector specific events, rating agencies follow a typical trajectory for rating action. Starting with keeping the rating on watch, followed by a change in outlook and finally, a rating action (upgradedowngradereaffirmation).
Covid-19 being global catastrophe, the effect is severe. So the usual trajectory may not be followed. In most of the cases rating change is what will be common, pointed out a senior banker.
The hospitality sector has been hit hard by demand destruction in aftermath of Covid-19 triggered lockdown. Domestic rating agency CARE revised outlook on rating for Tata group-owned Indian Hotels Company Ltd from “stable” to “negative”. The ‘Negative’ outlook is on account of disruption in operations due to Covid-19 outbreak.
Most of the company’s properties have been shut down or are operating at minimal level. CARE expects the occupancy rates and revenue per room to substantially decline in FY21 and recovery is expected to be slow and gradual. Disruption could also lead to an increase in working capital requirement which may impact the liquidity position, CARE added.
Rating agency ICRA affirmed “A+” rating for TajGVK Hotels & Resorts Ltd’s long term loans and “A1+” for short term loans. However, it revised outlook on rating from “stable” to “negative”. TajGVK, joint venture of Tata group’s Indian Hotels and GVK group, is approaching lenders for a moratorium on loan repayments under RBI’s COVID-19-Regulatory Package.
India Ratings placed mall management outfit the Phoenix Mills Ltd’s (TPML) Long-Term Issuer Rating of ‘IND A+’ on Rating Watch Negative (RWN). It reflects the business disruptions that are caused by the temporary closure of malls, given the ongoing nation-wide lockdown. This has also elevated the near-term downside risks for the economic growth and discretionary consumption in the country. TPML, on a standalone basis, operates the High Street Phoenix and Palladium malls and the Phoenix House commercial building.
The second order effect like currency depreciation may also impact the credit profile of companies. Those with international borrowings will be adversely affected.
Rating agency Moody’s, in a review of high-yield companies in South and Southeast Asia, said depreciation of Indonesian rupiah and Indian rupee increases risks for some companies with currency mismatches and heavy reliance on US dollar debt.
These rating actions reflect unprecedented operating conditions, which are driving earnings contraction, higher debt levels and increasing refinancing risks.