Mumbai, May 25: Global rating agency Standard & Poor's (S&P) on Monday revised the foreign-currency rating outlook of six Indian corporates, including Reliance Industries and Telco, and three financial intermediaries -- IDBI, ICICI and Bank of Baroda -- from stable to negative. The long-term ratings have, however, been retained at BB-plus (BB+).The other entities whose foreign-currency rating outlook has been revised downward are Power Finance Corporation, National Thermal Power Corporation, Tata Electric Companies and L&T.
The rating agency has warned that a rating downgrade could occur if economic sanctions materially worsen the country's access to external funding, lower its growth prospects and exacerbate its already high fiscal deficit -- now running at nearly 9 per cent of the gross domestic product (GDP).
According to S&P, the revision has followed a similar action on India on May 23. The foreign and local currency rating outlooks were revised from stable to negative while the rating of BB+ forlong-term foreign currency and BBB+ for long-term local currency ratings have been affirmed.
Analysts said that the revised ratings mean a rise in the interest outgo to the tune of $20-30 million. This has already made an impact on the foreign exchange market and the spot rupee pierced the 41 mark against the dollar on Monday.
The downward revision in outlook also means that the cost of borrowing for Indian corporates will be jacked up by 50-100 basis points. The $100-million Power Finance Corporation foreign currency borrowing may run into rough weather as investors have been shunning Indian papers at lower rates. The PFC loan, which opened for syndication last Friday, will set a benchmark for other corporates in the overseas market which has now been opened to unlisted companies also.
The rating agency has stated that the performance of IDBI, ICICI and BoB has been satisfactory. "While the performance of these financial institutions generally has been satisfactory, a change in the ratings of thesovereign in the medium term could result in a change in the foreign currency ratings of the entities," the agency said in a release.
IDBI chairman SH Khan has said that the revised rating is not an important development as corporates are anyway not accessing the foreign currency market due to the volatility of the Indian currency. "IDBI has enough money to fund Indian corporates for the next six months," Khan said.
"The change in the India's outlook reflects the erosion of India's external position following the imposition of sanctions by the US and other countries in response to nuclear tests carried out by the India this month," S&P said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
