MUMBAI, July 1: The credit rating agencies have downgraded the debt instruments of 51 companies in the first quarter of the current fiscal. While the slowdown in industrial growth was the main contributing factor to the lowering of manufacturing companies' debt instruments, the downgradation of finance companies was triggered by the collapse of CRB Capital Markets.

The list of non-banking finance companies that have been downgraded after the CRB fiasco include ITC Classic Finance, ICDS Ltd, Raunaq Finance, DSJ Finance Corporation, Dugar Finance, Global Finance Corporation and Enarai Finance among others.

The non-convertible debenture programme of ITC Classic, which has seen its net worth eroded after posting a net loss of Rs 285 crore in 1996-97, was downgraded on Monday. The manufacturing companies which faced downgradation include the likes of Indian Dyestuff Industries, Sterling Holiday Resorts, VST Industries, Lupin Laboratories, Blue Dart Express, JK Industries, PAL Peugeot, Lloyds Steel and Timex Watches.

The premier Indian rating agency, Credit Rating Information Services of India Ltd (Crisil), has downgraded 32 companies during the first quarter of the current year, eight of which were non-banking financial companies.

Crisil has downgraded over 140 companies during the last two years. Credit Analysis & Research Ltd (Care) has downgraded 10 debt programmes in April-June 1997. Four of the companies downgraded are NBFCs.

Delhi-based ICRA has downgraded nine companies during the first quarter of the current year. Only two of companies are NBFCs—DCM Shriram Leasing & Finance and Kiev Finance, which has links with the CRB group.

The rating agency had, during the last quarter of the 1996-97 financial year, downgraded four NBFCs, including Indian Seamless Financial Services Ltd.

Duff & Phelps, a relatively new entrant in the credit rating business, which started operations in the country in August 1996, has handled only 20 ratings so far, of which only six have been released. The rating agency has, however, not yet downgraded any of these debt instruments.

"There have been several factors that have contributed to the downgradings, like falling import duties on goods, the high interest rates last year and the number of infrastructure projects that got stuck ", says Crisil managing director Ravi Mohan said.

Credit rating firms in downgradation mood

re has been a deterioration in the profit margins of nearly all companies in the country due to the depressed state of the economy, which has in turn led us to resort to a score of downgradings," adds ICRA managing director PK Choudhury.

According to Mohan Nagarajan, an economist at Care, "the large number of downgradings have been mainly on account of the industrial downturn during the last financial year which has hit the bottomlines of most companies in the manufacturing as well as services sectors. After the CRB episode, we are now looking closely at financial companies."

Ever since the start of the liberalisation process in 1991, import duties on goods have been steadily reduced. This has been eating into the margins of domestic manufacturers and strained their bottomlines, industry sources pointed out.

Indian corporates were also faced with huge liquidity problems and forced to borrow at rates as high as 22 per cent in 1996-97. This led to a lot of their expansion plans getting stuck halfway through their implementation. Moreover, the political turmoil in the country during the last two years has also contributed to the delay in project implementation.

"However, blue chip corporates should not have much problem with their credit ratings. It is only the middle-rung corporates that will continue to face this problem since most of them are on expansion sprees", said Nagarajan.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.