Indian cos’ debt more than doubles in 4 yrs

Telecom Rollout, Power Projects & Under-Recoveries Push Up Borrowings

Mumbai: A slew of factors-—funding of under-recoveries by oil marketing companies, investments by power, infrastructure and energy companies, rollout of telecom networks and mergers & acquisitions— drove the debt levels of top 50 Indian companies to Rs 8.5 lakh crore during last fiscal, more than double in four years. 

    A lacklustre stock market and regulatory bottlenecks forced corporates to rely on borrowed capital to fuel their growth plans, increasing the collective debt by 18% over fiscal 2010-11, an analysis by Crisil Ratings showed. 

    In comparison, in FY11 a significant part of the total debt, Rs 7.3 lakh crore, was due to the financing of 3G spectrum by telecom players. Cellular operators paid Rs 1.07 lakh crore for 3G spectrum and broadband airwaves. In FY08, the aggregate debt of the 50 companies, rated by Crisil, stood at Rs 3.8 lakh crore. 

    But in FY12, "debt levels increased primarily in oil & gas and power sectors," said Sudip Sural, director, Crisil Ratings. "In the energy sector, a significant portion of the debt was on account of short-term borrowings by oil marketing companies for funding the rising levels of under-recoveries. And in the power sector, the incremental debt moved in tandem with the increased pace of project execution, mainly in generation and transmission." 

    Seshagiri Rao, joint MD & CFO, JSW Steel, said that when corporate growth is strong, companies often go for expansion, part financed by internal accruals. 

    But a dip in economy impacts business performance and then companies opt for debt financing. Even as the debt level has increased, in an environment of high interest rates, a slowing economy and sluggish revenue growth, the ability to service this debt will remain a challenge, industry observers said. 

    For example, Tata Steel, which has a debt of about Rs 47,700 crore on its books, said that it plans to raise around Rs 19,000 crore as debt to fund its Rs 37,000 crore, sixmillion tonne Odisha project. And in the telecom sector, Vodafone India, which incurred a capex of Rs 6,220 crore in FY12 and had a net debt of Rs 30,000 crore, plans to up its investments in the country. 

    Crisil Ratings predicts the debt level of 50 large corporates rated by it will rise albeit marginally, by about 3-5%, in FY13. 

    However, a lot hinges on government policies, especially in the upcoming sale of 2G spectrum, land acquisitions and mining policies, and investment policy in the fertilizer sector, which could shoot up debt levels further, Sural said. 

    For example, pending government clearances, several projects are stuck at various stages of implementation. Hindalco's greenfield aluminium smelter and 900 MW captive power project, which are linked to Mahan coal mine in Madhya Pradesh, have hit roadblocks on environment approvals. And Ahmedabadbased Adani Group has put its power projects in Gujarat and MP on hold till uncertainties over coal linkages are resolved. 

    Although top corporates are better placed to withstand the challenges of servicing higher debt levels, "the conditions at small and medium size companies could be more difficult," said Dhananjay Sinha of Emkay Global, a domestic broking house. "Build up of inventories and financial dislocations arising from impairment of cash slows are likely to impact this segment more significantly."