Corporate Stress To Increase to 18.2% of Outstanding Debt over FY20-21-FY2122: Report
The impact of coronavirus (COVID-19) pandemic and the associated policy response is likely to result in an additional Rs1.67 trillion of debt from the top-500 debt-heavy private sector borrowers turning delinquent between FY20-21-FY21-22. This is over and above the Rs2.54 trillion anticipated prior to the onset of pandemic, taking the cumulative quantum to Rs4.21 trillion, says a note from India Ratings and Research (Ind-Ra).
 
"This constitutes 6.63% of the total debt (previous estimate: 4%)," the ratings agency says in a report, adding, "Given that 11.57% of the outstanding debt is already stressed, the proportion of stressed debt is likely to increase to 18.21% of the outstanding quantum. We expect the corresponding credit cost to be 3.57% of the total debt."
 
Ind-Ra says it has analysed in detail the degree of vulnerability of the top-500 debt-heavy private sector issuers, after assessing the mix between productive and non-productive assets or asset quality held by each issuer along with their refinancing risks. The report buckets issuers in five categories of vulnerability – low, moderate, high, extreme and stressed. Based on these buckets, the agency has arrived at the estimates of debt at risk and expected credit costs. 
 
 
Ind-Ra says it believes that in a scenario wherein funding markets continue to exhibit heightened risk aversion, corporate stress could increase further by Rs1.68 trillion, resulting in Rs5.89 trillion of the corporate debt or about 9.27% of the total debt becoming stressed in FY20-21-FY21-22. The resultant credit cost could be higher at 4.82% of the outstanding book. Consequently, 20.84% of the outstanding debt could be under stress in the agency’s stress case scenario, it added. 
 
Although further revisions in the FY20-21 GDP growth expectations by themselves may not lead to a change in Ind-Ra’s stress estimates, the risk of a significantly prolonged recovery in the economic activity through FY20-21-21-22 and a larger-than-anticipated dent on demand could even result in stresses surpassing the agency’s stress-case estimates. 
 
It says, "The progression of the pandemic, the policy response and its impact on economic growth, the actual build-up of stress could result in higher default rates and credit costs – in line with the peak levels experienced in the last decade."
 
The ratings agency sees credit growth falling 15% while refinancing requirements to remain elevated over FY20-21. "The tepid corporate capex coupled with muted revenue is likely to restrict credit growth in FY20-21. However, refinancing pressures will persist and securing timely funding could continue to prove challenging," it says.
 
Ind-Ra says it expects the Rs4.81 trillion fresh credit demand by the top-500 debt-heavy private sector corporates to emanate from a mix of receivable financing and a further drawdown of unutilised bank limits to shore up liquidity, meet cash flow shortfalls and to fund various isolated pockets of capex spending – largely restricted to maintenance capex. 
 
According to the ratings agency, an additional downside risk emanates from the fact that the impact beyond the top-500 debt-heavy private sector corporates could be more severe depending on the access to liquidity, and could even be disproportionately higher. 
 
"In particular," it says, "as economic uncertainties continue to linger, lenders despite adequate liquidity are most likely to deploy their capital at the upper end of the credit curve with a shorter tenure. Lenders may turn even more selective – weakening the resource mobilisation ability of lower rated issuers in the investment grade, including those rated in the ‘A’ and ‘BBB’ categories. Consequently, these issuers are at the greatest risk of facing rating transitions in FY20-21, although the rating sensitivities for various higher rated corporates could also be tested."
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    COMMENTS

    Ramesh Popat

    1 month ago

    why the market does not recognize it now, is too surprising!
    or the march 20 like horror will revisit?

    Maharashtra hotels to reopen, 50% may shut for good
    With hotels and restaurants preparing to reopen for business after nearly four months, the prospects of around 50 per cent of them shutting permanently also loom large, top players warn.
     
    The Centre has indicated July 8 as the target date for the hospitality industry to throw open its doors to guests and patrons, but there is no clear signal yet from the Maharashtra government.
     
    "The situation is bad and getting desperate daily. Till June 30, the hospitality industry piled up around Rs 1.25 lakh crore losses. Many hotels and hospitality chains have expressed inability to continue operating partially or fully," Gurbaxish Kohli, Vice-President of the Federation of Hotel & Restaurant Associations of India, told IANS.
     
    "The proposed reopening is welcome but delayed. Initially, around 35 per cent of the industry will shut and by the year-end, this could go up to 50 per cent," an equally worried Indian Hotel & Restaurant Association President Shivanand D. Shetty told IANS.
     
    Both rue that despite the hospitality sector contributing 10 per cent to the national gross domestic product (GDP) and accounting for 12.50 per cent of jobs, "the industry has been completely ignored" by the government.
     
    A delegation of the hospitality industry met Chief Minister Uddhav Thackeray on Sunday but returned without a final commitment on the reopening date, though the government has prepared a set of mandatory SOPs.
     
    "We understand one-third occupancy and restarting restaurants for guests within the premises may be permitted. The fate of standalone restaurants will be decided separately. But more delays will impact our very survival," Shetty said.
     
    Kohli said there were 53,000 hotels in the regulated sector, and a similar number in the unorganised sector, which impacted revenues of the recognised industry.
     
    Besides, there were around 5,00,000 eateries, encompassing all outlets -- from roadside dhabas to the restaurants and big chains, which would be hit by the 50 per cent closure, Shetty said.
     
    The situation was alarming even in Maharashtra where over 1,00,000 big and small restaurants would shut, entailing a major disaster in the form of over 5,00,000 job losses, said Hotels & Restaurants Association of Western India (HRAWI) spokesperson Suhas Awchat.
     
    "Restaurants opened across India on June 8, but not in Maharashtra, where we pay among the highest statutory fees and levies in advance, which kept increasing even during lockdown," Awchat said. The HRAWI launched a campaign a#KhadyagruhaWachva (#SaveRestaurants) last week.
     
    Remote holiday resorts had their own problems, said Pankaj Barve, owner of a 10-cottage Vulcan Wildlife Resort in the heart of the Pench Tiger Reserve of MP. "Besides taking care of staff during the lockdown, we have to ensure their well being till October, when the tiger sanctuary will reopen for tourists," Barve told IANS.
     
    "Until the vaccine comes, the situation will remain uncertain. It will be difficult for most operators to adhere to the stringent conditions demanded by the government, but we are ready to start," said Payyade Hotels Director P.V. Shetty, a former Joint Secretary of the Mumbai Cricket Association.
     
    With barely 20-25 per cent availability, there was shortage of skilled staff for restaurants, and at one-third guests/patrons norms, it could be difficult even to recover operating costs, he said.
     
    Sudhakar Shetty, a restaurateur with a chain of restaurants, like Hotel Riviera and Hotel Surbhi in Thane and Mumbai, said those operating from leased premises would be the worst-hit.
     
    "They will first have to pay the accumulated rents of the past four months, and it may take at least another four months to stabilise business. They may not find it feasible to continue operating," Shetty said.
     
    The industry leaders apprehend that even after reopening with limits, there are big questions: "Where are the guests or patrons who are still scared, and our workers have left and will take long to return comfortably".
     
    Besides, there has been no decision on the demand for moratorium and other relaxations sought by the industry. Union Tourism Minister Prahlad Singh Patel has not "met the industry even once" and there's no clarity on the government's plans for the hospitality sector, which will make its survival "difficult and unviable".
     
    Kohli said over 22 million Indians travelled abroad each year, which had stopped due to the long lockdown. But if Indian states relaxed their respective rules, at least half of them could be attracted to the domestic sector, instead of visiting neighbouring countries, like Sri Lanka, Nepal, Thailand, the UAE, he said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    valentine.barboza

    1 month ago

    Excuse the typo error pls

    valentine.barboza

    1 month ago

    As we all are aware that the hospitality sector is the worst hit, my suggestion to restaurant owners is to shut down as COVID-19 is here to stay. The state government is doing nothing and the cases are still on the rise. None c a light in the tunnel. It’s a complete loss for any hotel operator or testa owner to comply to the norms of this state government. Masks, sanitisers, 30 percent capacity is all costs to a owner.. shit shop and save the money on rents as even a while yet of 2021 looks grim and distant that COVID 19 will be gone..

    tillan2k

    1 month ago

    non thinking enterprises why not start takeaways . no physical resilience in persons

    veereshmalik

    1 month ago

    pre-COVID19 and post-COVID19 also, a surplus of hotel rooms kind of matches a shortage of hospital rooms. However, operators will have to work harder as hospitals and all sorts of grey area revenue streams as hotels are not going to happen as hospitals.

    i_sakarwala

    1 month ago

    Hotels which were anyways not doing well and we're over rated will shut down. This was true during non covid times too, but making covid as an excuse and show a grim picture adding to an already skewed data will the order of the day. The fact is, people who know how to survive will start again and prove that all is well and things will back to normal.

    Govt to pay interest on late payment to MSMEs for GeM purchase
    Government departments and agencies will have to pay interest on late payment to vendors, largely MSMEs, for products procured through the Government e-Martketplace (GeM), starting October 1.
     
    Through an office memorandum, the Department of Expenditure of the Ministry of Finance on Friday said that if the payment is not made within 10 days of the Consignee Receipt and Acceptance Certificate (CRAC) being auto generated or issued by the buyer, the concerned department will have to pay interest at the rate of one per cent per month for the delayed payment.
     
    However, this very interest will not go to the MSMEs concerned and instead, will deposited in an account maintained by the GeM, which will be used only for the education of buyers and sellers or public procurement with the prior approval of the Department of Expenditure, said the office memorandum.
     
    "ln order to promote greater discipline and timeliness in payment to vendors, especially #MSMEs, the government has issued an order to levy interest on late payment to vendors on the government e-marketplace. #AatmaNirbharBharat," said a tweet by Finance Minister Nirmala Sitharaman's office.
     
    The order will be effective on orders made from October 1, 2020.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    cvramaraju

    4 weeks ago

    Great decision madam, same to be extended in all Govt contracts to reduce harassment of suppliers by Govt officials and reduce corruption and also same to applied if suppliers do fraud with govt and no legal enforcement to halt process and decision of legal adjure within frame may be maximum one year. SoPs are required to correct the system and possible to remove govt restrictions so that economy growth automatically take care. Interface with public to be automated and transparency and seeking information under not RTI doesn't required. We are ruling ourself within constitution and no use of British laws, so we need many modifications required hoping take care from Govt.

    Varun123

    1 month ago

    Why such kolavari FM? How will it benefit vendor? If you need, allocate budget for education of vendors and concerned government officials, but pay the interest to vendor. Recover such dues from responsible officer. Then only government department will pay dues on time.

    REPLY

    cvramaraju

    In Reply to Varun123 4 weeks ago

    Varun ji said correctly dues to be collected from responsible officer before that time lines to be defined within the office and description powers to be removed and arrogance service may not inclined but govt is strong in this to improve the ease of doing of business same to be applied in all govt transactions with public and govt/PSU to govt/PSU also.

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