India Inc cuts Rs 95,000-crore debt

MUMBAI: As part of India Inc’s deleveraging exercise, over 1,000 firms have reduced their debt by about Rs 95,000 crore during the first six months of this financial year with the largest debt repayment coming from the refinery, finance and telecom sectors. Companies in the steel and construction sectors were also seen cutting down their aggregate debt. While these entities have seen the positive effect of lower interest cost percolating down to the bottom-line, the topline had witnessed some degrowth.

Their net sales fell by 6.48 per cent in the first half of FY17 compared to the same period last year. However, their profit after tax (PAT) improved by 658.5 per cent. According to SBI, these companies were able to reduce their interest cost by 6.5 per cent on account of the deleveraging. During the period, SBI pointed out that around 200 corporates had trimmed their loan amounts by '50,000 crore out of which 70 per cent of the debt reduction came from just ten firms.

Leading among them were mining major Vedanta Ltd, which pared down its consolidated debt by Rs 13,484 crore from Rs 73,006 crore reported in September 2015 to Rs 59,522 crore in September 2016 followed by infrastructure and engineering major L&T, which reduced its debt by Rs 8,588 crore to Rs 79,680 crore. Telecom giants RCom lowered its debt by Rs 2,833 crores to Rs 32,371 crore, logistic firm Arshiya and telecom infrastructure provider Bharti Infratel trimmed their debt by Rs 1,593 crore and Rs 1,462 crore respectively.

“It is pertinent to note that the credit default swap (CDS) spread has narrowed significantly over the course of the last one year. This points to an improved and better credit standing of India in relation to other countries,” said Dr Soumya Kanti Ghosh, chief economic advisor, State Bank of India. A credit default swap is an insurance against non-repayment of loans and a narrowing credit default swap spread signals lower probability of a credit risk event.

An analysis done by SBI reveals that India’s CDS spread has come down to 117 basis points over the last one year when compared to the CDS spread of 113 basis point for China, 182.basis point for Russia and 250 basis point for Brazil.