Companies & Sectors
Recovery, credit quality stabilisation to be gradual
Ratings agency CRISIL has said that credit quality of Indian companies is beginning to stabilise after being in virtual free fall for FY09 as companies are having easier access to funds following the Union government's fiscal and monetary easing and positive stock market conditions coupled with lower commodity prices which have led to lower working capital requirements.

 In a study, the ratings agency, however, cautioned that the recovery in credit quality will at best be gradual and may not necessarily be smooth.

 “There are signs that both the monetary and fiscal easing and the lower commodity prices are temporary. Additionally, unlike in the late 1990s, we see no prospect of a sudden and sustained upturn in economic conditions to lift corporate performance. We can therefore rule out a sudden jump in modified credit ratio (MCR) of the kind we saw in 1999-2000, when MCR rose to 0.92 from 0.61,” said Raman Uberoi, senior director, CRISIL.

 In India, fiscal and monetary authorities have begun to explore an exit from the present supportive stance and the timing and extent of these measures is likely to have a significant bearing on the pace and extent of economic recovery after the current phase of stabilisation, the ratings agency said. 

In a research note, Standard Chartered Bank said although signs of recovery are apparent, most importantly in the industrial sector, the disappointing monsoon could impact private consumption expenditure which is a major contributor to overall gross domestic product (GDP) and remains weak. 

 Echoing the same, credit information company Dun & Bradstreet (D&B) said that a confluence of factors such as sustained improvement in index of industrial production (IIP), increase in direct tax collections and improving business sentiment indicate that the process of economic recovery has set in. Despite these developments, the pace of economic recovery is expected to be slow due to the emergence of certain downside risks such as a potentially lower agriculture growth and surging primary food articles inflation, D&B said. 

 CRISIL, the unit of Standard & Poor's further added, the return of stability to the global economy has also meant that commodity prices in India have retraced 25% to 35% of their decline from the peak levels of mid-2008.

 “Access to funds has eased considerably, but there is significant uncertainty with respect to exchange rates and consumer demand. Large exchange rate movements can hit export-dependent sectors hard, and domestic demand can be affected by rising prices in general and food prices in particular," said Ajay Dwivedi, director, CRISIL Ratings.  

"We also note that the Reserve Bank of India’s window for restructuring of bank assets helped many companies avoid distress over the last 12 months. Looking ahead, we see a long and bumpy road for recovery in corporate credit quality,” Dwivedi added.

 Kaushal Sampat, chief operating officer, Dun & Bradstreet India said, “A sustained growth in industrial production will primarily be driven by the consistently improving business sentiment and recuperating demand conditions. Given the emergence of certain downside risks to growth and the limited scope for further fiscal stimulus, the timing of 'exit' strategies in terms of accommodative monetary policy becomes even more critical." 

D&B said it expects that while RBI might consider increasing the cash reserve ratio (CRR) for draining of excess liquidity from the system anytime till the end of the current fiscal, it may maintain a status quo in terms of other policy interest rates. However, these changes to CRR are unlikely to happen in the policy review of October 2009.                              

-Yogesh Sapkale [email protected]


Gammon Infra puts QIP on hold
Gammon Infrastructure Projects Ltd (GIPL) which was planning to raise Rs500 crore through qualified institutional placements (QIPs) is now exploring other options like debt, stake sale and private equity funding due to its below expected performance in the stock markets and lower valuation.
"QIP is always governed by the market value. We are not satisfied with the way our shares are performing currently. The market value is far below than what it was for the initial public offer (IPO) last year," said Parvez Umrigar, managing director, GIPL.
Earlier, the company had planned to raise Rs500 crore through a QIP. Besides raising funds through debt or private equity placements, GIPL may also sale its stakes in its 15 special purpose vehicles (SPV).
“We are now probably looking at some debt, as GIPL is currently a debt-free company,” Umrigar said adding that it may talk to private equity funds, which may look beyond the company’s current share price.
However, Umrigar does not rule out QIP as an option completely. "QIP continues to be an option for us, as it is a faster process and not a time-consuming one. Liquidity is faster with QIPs," he said.
Last year, GIPL raised Rs276.40 crore through its IPO but GIPL shares have fallen by 31% since its listing on 3 April 2008. Gammon Infra shares were listed on the BSE at a premium of 8% over its issue price of Rs167. GIPL shares closed 1.2% down at Rs108.5 on the Bombay Stock Exchange, while the Sensex ended 0.2% down at 17,195 points today.
“GIPL entered the capital market when things were not so good, but still our issue was oversubscribed. Since then, the markets have not been stable,” Umrigar added.


A new high
Here is a piece of great news for the airline industry. Qatar Airways has become the first carrier to fly an Airbus A340 plane on natural gas fuel. The plane is powered by Rolls-Royce engines using a 50-50 blend of synthetic gas-to-liquids (GTL) fuel. That will cut down sulphur, corrosion, carbon dioxide and other emissions. Additionally, this type of fuel increases the flying range of aircraft.

The airline industry has been asked to bring down emission levels by 10% in the recent G-20 summit. The world airline industry has 19,000 planes consuming 208 billion litres of fuel every year causing an emission of 540 million tonnes of carbon dioxide. The Qatar Airways experiment seems like a viable answer.

World powers are constantly seeking alternative fuels to reduce emission levels. Earlier, the erstwhile USSR has used aircraft fueled with alternative fuel like liquid hydrogen, liquefied natural gas 20-25 years ago. The USSR had used propane-butane fuels to fly helicopters in the 1970s.

In gas-run planes a fuel leak can be determined immediately because vapours form a concentration measurable for gasometry instruments. A gas leak leaves the crew with a better probability of escape. Gas has a higher combustion value than aviation fuel, which could improve the weight characteristics of aircraft.

In addition, aviation fuel may last for another 20-25 years whereas gas reserves are expected to last for the next 100 years.

Qatar has the world's third-largest gas reserves. GTL, although more expensive than kerosene, has a higher density and high calorific value that implies that more can be pumped into a plane to extend its flying range.
- Dhruv Rathi [email protected].


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