Ukraine war unlikely to roil Rs 5 tn refinancing next fiscal: Report

Over 1,400 large companies have to refinance Rs 5 lakh crore next fiscal, but the ongoing global crisis following the Russian invasion of Ukraine in the form rising inflation risks and the resultant likely spike in interest rates, is unlikely to cause any trouble for them given their strong balance-sheets and stable earnings, says a report. According to an analysis by India Ratings, the top 1,423 non-financial, debt-heavy corporates have to refinance as much as Rs 5 lakh crore next fiscal, but the refinancing risk is manageable despite a challenging environment owing to the tightening monetary policy condition, volatile commodity prices and rising geopolitical risks.

Total refinancing requirement is estimated at Rs 5 lakh crore in FY23 on a blue-sky scenario, marginally up from Rs 4.98 lakh crore in FY22, the agency said, but added that the quantum will go up 33 per cent to Rs 6.6 lakh crore in FY23, based on a hazy-sky scenario.

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

The agency expects refinancing risks to ebb in FY23, largely driven by healthy earnings in the past two years and a significant deleveraging by many debt-heavy entities. Under the blue-sky scenario, it estimated that 85 per cent of the refinancing requirement is likely to be for the top 100 corporates based on gross debt, which have a better credit quality than medium- and smaller ones.

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

The report expects refinancing worth Rs 3.6 lakh crore of the total Rs 5 lakh crore can be refinanced by with an interest coverage ratio of 1.5x and above, indicating high probability of refinancing. For the remaining Rs 1.3 lakh crore debt, for which interest coverage is below 1.5x and/or have negative operating margins, may find the going tough given the still cautious approach of lenders.

The debt heavy sectors like oil, power, capital goods and iron & steel will have an estimated refinancing of Rs 2.32 lakh crore or 47 per cent of the total requirement, in FY23 and the report does not expect these entities to face any challenges in refinancing given their superior access to the markets and strong financial health.

The report, however, does not see much impact on these companies due to the ongoing war in Ukraine and concludes that war will have only a moderately adverse impact on companies top line, input costs and, subsequently, cash flow and working capital requirement, that too if the war lingers on for long. \