India’s top 10 business houses, including Reliance ADA (Anil Ambani group), Vedanta, Essar and Adani, have seen their total debt levels soar by 15 per cent to Rs 6,31,024 crore during the last fiscal with profitability remaining under pressure and weakening rupee set to cause further pain.
According to a study by Credit Suisse, Adani group’s debt has risen by 17 per cent to Rs 81,122 crore, Essar’s by 15.47 per cent to Rs 98,412 crore, Reliance ADA’s by 24 per cent to Rs 1,13,543 crore and Jaypee group’s by 18.7 per cent to Rs 63,654 crore.
“For most of them the debt increase has outpaced capex and asset sales are yet to take off. The rising stress is visible with some loans of Lanco, JPA, and Reliance ADA already being restructured,” it said in a report ‘Houses of Debt: Revisited’.
“Debt coverage ratios have further deteriorated with profit and loss interest cover at groups such as Essar, GMR, GVK and Lanco already under 1. Interest cover at Adani and Jaypee have also fallen to below 1.5. Debt servicing strain is likely to intensify further as capitalised interest is a further 30-250 per cent higher and 40-70 per cent of loans are in foreign currency. Increase in liabilities on account of the currency was larger than the FY’13 PAT and with currency down another 12 per cent year-to-date, stress will now be even higher,” Credit Suisse said.
Credit Suisse said many corporates’ loans are 40-70 per cent foreign currency denominated; therefore, the sharp depreciation in the rupee is adding to their debt burden. Adani Enterprise and Reliance Communications have the largest percentage of foreign borrowings. Large corporate NPAs are still low; for example, 1.7 per cent at SBI, where 5.6 per cent of total loans are now non-performing. As a study of these 10 groups reveals, the overleverage in the large corporate segment is high and is a potential source of additional asset quality stress for banks, it said. With over 13,000 MW of power capacity from these groups scheduled to be commissioned, the current year will be critical. Reliance Power, GVK Power, Adani Power and GMR Infra would see their capacities almost double if the projects were to come on stream as expected.
“However, project delays may result in more debt being restructured,” it said.