Nearly 98% of the $100 billion in forex debt held by Crisil-rated investment grade companies is unhedged, the rating agency has found in its latest research report. Aggregate forex-denominated debt across 2,481 companies rated by agency stood at $100 billion, which accounts for 50% of total forex debt of corporate India and 32% of the banking sector's loans, Crisil said.
Of this, $98 billion was unhedged, said the report, titled “State of The Nation”. Interestingly, forex volatility emerged as the least stress factor and only 6% of the companies included in the report are vulnerable to exchange rate volatility, according to the agency.
“You must not see the $98 billion unhedged in respect to the $100-billion total, but compare them with the networth of the companies. We found that the networth is quite strong and, so, there is no big stress,” said Roopa Kudva, managing director and chief executive officer, Crisil.
Kudva, however, said that the research does not include Essar Group, GMR, GVK, Jaypee Group, JSW and Videocon.
Meanwhile, liquidity pressures and a high level of indebtedness emerged as key stress factors being faced by large Indian corporates, especially those having operating income of more than Rs 1,000 crore. Crisil said 16% of the 2,481 companies that it rates as investment grade are vulnerable to liquidity pressures.
“The slowing economy has led to a piling up of inventory and receivables, resulting in liquidity stress for slightly over a fourth of the big firms,” Crisil said. The rating agency lists five stress factors for corporates — forex volatility, liquidity, demand slowdown, extent of debt and debt servicing ability.
Notably, large companies are most vulnerable, while smaller companies have shown greater resilience, the report said. Around 36% of the large companies that Crisil rates face more than two stress factors. Further, real estate and infrastructure companies are the most vulnerable, followed by automobiles.
The agency's research shows that the country's GDP growth for 2013-14 could fall to a decade-low of 4.8% because of a sharp slowdown in industrial growth.
Agriculture growth could surprise on the upside and Crisil forecasts a growth of 4.5%. This is likely to boost rural demand and companies’ topline, going forward.