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10 September 2018
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The Moody's (The Total Investment & Insurance Solutions)
The
ongoing free fall of the rupee against the US dollar is credit negative for
Indian companies, especially for those that generate revenue in rupees but rely
on dollar debt to fund their operations and have substantial dollar-based
expenses, Moody's Investors Service said on Monday.
The
American credit rating agency's report on the weakening rupee was published on
the day the Indian currency touched a new low of 72.67 on Monday, depreciating
by almost a rupee from its previous close of 71.73 per US dollar. The rupee has
depreciated 13 per cent so far this year against the dollar.
"A
sustained "weakening of the rupee would be credit negative for its rated
Indian companies, particularly those that generate revenue in rupees but rely
on the US dollar debt to fund their operations and have significant
dollar-based costs, including capital expenses," Moody's said."
However,
of the 24 Moody's-rated India-based corporates across the high-yield and
investment-grade categories, 12 generate most of their revenue in US dollars or
have contracts priced in the greenback, providing a natural hedge, and thus
limiting the effect a weakening in the rupee could have on their cash flows, it
said.
"Nevertheless,
most rated India-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 (September 6) rate," Moody's Vice
President Annalisa D'Chiara said in the report.
"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," she added.
The
24 corporates rated by Moody's include those in the IT, oil and gas, chemicals,
automobiles, commodities, steel and real estate sectors.
According
to the US agency, weaker credit metrics under a scenario of a further 10 per
cent drop in the value of the rupee, from the rate on September 6, can be
accommodated in the companies' current rating levels.
"Furthermore,
refinancing risk associated with the companies' US dollar debt maturing over
the next 12 months is manageable," it said.
The
Moody's report follows its annual survey of the US dollar debt exposures of
South and Southeast Asian high-yield companies, published in June 2018, which
considered the effects of the rupee weakening to around Rs 78 to the US dollar.The Total Investment & Insurance Solutions
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