Around Rs 10.52 lakh crore of corporate debt at risk of default due to slowdown: report

MUMBAI: As the economy deals with a prolonged slowdown, about Rs 10.52 lakh crore is at risk of default over the next three years, a report says.

GDP (gross domestic product) growth slowed to a minimum of almost seven years of 4.7 percent in October-December 2019, according to data published by the National Statistical Office (NSO).

The NSO has set economic growth at 5 percent for the 2019-20 fiscal year in its second anticipated estimates published last week.

India Ratings and Research in a report said that the credit profiles of companies are likely to remain under pressure as the economy struggles with a synchronized and prolonged economic slowdown.

At least Rs 10.52 lakh crore of corporate debt, which is 16 percent of corporate debt at the system level, is vulnerable to default over the next three years, the rating agency said in a report on Monday.

The report has analyzed in detail the degree of vulnerability of the 500 main issuers of the private sector with large debts after evaluating the combination between productive and non-productive assets (i.e. asset quality) held by each issuer along with its risk of refinancing.

Identify the amount of vulnerable debt by analyzing the risk of refinancing and the quality of assets for 11 sectors: real estate, energy, automobiles and auxiliary services, telecommunications and infrastructure, among others.

The rating agency said that about 25 percent of the vulnerable debt is likely to become delinquent, resulting in an additional Rs 2.54 billion of delinquent debt.

This is likely to result in incremental delinquencies to the extent of 4 percent of the corporate debt at the system level for fiscal year 2222, he said.

In case the deceleration of the growth of the real gross domestic product intensifies (4.5 percent during fiscal year 21-2022), the incremental delinquency could be higher by 159 additional basis points to the 5.59 percent of the system's debt, he said The report.

However, if there is a strong recovery in GDP (a 7 percent growth during fiscal year 21-2022), late payments could be 87 basis points lower than 3.13 percent of the system's debt.

The report says that companies that are already stressed (recognized as delinquent by banks and credit rating agencies), lenders of at least half of these companies will likely have to take cuts, given the inherently weak quality of the assets of these emitters. However, most of the exposure to these accounts has already been provided by the lenders, he added.