CORPORATES UNDER DEBT TRAP

More than half of the highly over- leveraged top 500 companies would need more than a whopping Rs 7 trillion or USD 114 billion and three years to deleverage themselves, says a report India Ratings. "If equity infusion is used as a means to deleverage, as many as 262 of the 500 top corporates would require a minimum equity infusion of around Rs 7,04,300 crore (USD 114 billion). "But raising this amount will be a significant challenge given that between FY08 and FY14, less than half of this amount was infused as equity across these 500 corporates," India Ratings senior director for financial services Deep N Mukherjee said in a note. If these companies were to bring down their leverage ratio to a prudent level, they will need around three years to complete the process, provided their debts do not rise from the FY14 levels, he said. Mukherjee added, however, that the process will take five to six years if there is only a marginal uptick in the economy over the current level. Of these, as many as 96 corporates, which are already tagged as non-performing assets or are undergoing corporate debt restructuring, will take 5-10 years to reduce their leverage to moderate levels, he said.

Out of these 96 companies, 62 will require a minimum equity infusion of Rs 2,41,000 (USD 39 billion) so as to improve their likelihood of remaining a 'going concern'. This amount is well over the market capitalisation of a lot of these 62 corporates, Mukherjee said. As such, equity could come in only if the current promoter -managers are changed or else these would continue to weigh down their lender's balance sheet for a long time, he said. The report warns that out of these 96 companies as many as 87 are highly vulnerable as they have very weak credit metrics and lack support of a strong group or parent, and therefore may be formally slipping into the stressed category. At least 71 out of these 87 corporates will require an equity infusion of Rs 89,200 crore over the next six to 12 months if they were to prevent themselves from slipping into the stressed category. And if no equity infusion happens, they will take five-eight years to moderately improve their credit metrics, Mukherjee said. Of the 317 corporates which are not immediately vulnerable, 128 would require an estimated Rs 3.7 trillion. But if these companies chase growth opportunities by taking further debt, there is a strong likelihood of their overall credit profile deteriorating, he warned.