War in Ukraine unlikely to disrupt refinancing of Rs 5 tn in next fiscal year: report

More than 1,400 large companies are due to refinance Rs 5 lakh crore in the next financial year, but the ongoing global crisis after the Russian invasion of Ukraine in the form of increased inflation risks and likely rate hikes resulting interest rate should not cause them any problems given their strong balance sheets and stable earnings, according to a report. India Ratings analysis says top 1,423 heavily indebted non-financial companies to refinance up to Rs 5 lakh crore in next fiscal year, but refinancing risk manageable despite challenging environment due to monetary policy tightening . the volatility of commodity prices and the rise of geopolitical risks.

The total refinancing requirement is estimated at Rs 5 lakh crore in FY23 on a blue sky scenario, slightly up from Rs 4.98 lakh crore in FY22, the report said. agency, but added that the quantum will increase by 33% to Rs 6.6 lakh crore in FY23, based on a hazy scenario.

The blue sky scenario assumes growth in revenue and operating margins, while the hazy sky scenario assumes a moderation of both as well as an increase in working capital requirements.

The agency expects refinancing risks to decline in FY23, thanks in large part to strong earnings over the past two years and significant deleveraging by many heavily indebted entities. Under the blue sky scenario, he estimated that 85% of refinancing needs would be for the top 100 companies based on gross debt, which have better credit quality than medium and small.

In terms of ratings, 75% of the refinancing is for entities rated AA or better.

The report expects that a refinance worth Rs 3.6 lakh crore out of the total Rs 5 lakh crore can be refinanced with an interest coverage ratio of 1.5x and above, indicating strong probability of refinancing. For the remaining debt of Rs 1.3 lakh crore, for which the interest coverage is less than 1.5x and/or which has negative operating margins, could find the way difficult given the still cautious approach of the lenders.

Highly indebted sectors like oil, power, capital goods and iron & steel will have refinancing estimated at Rs 2.32 lakh crore or 47% of total need, in FY23 and the report does not expect these entities to face refinancing challenges. given their superior market access and strong financial health.

The report, however, does not see much impact on these businesses due to the ongoing war in Ukraine and concludes that the war will only have a moderately negative impact on business turnover, costs of inputs and, subsequently, cash flow and working capital requirements, which also if the war lasts a long time.

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