Default rates among corporate bond issuers to rise in medium term – Mint

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Various relief measures such as the moratorium on debt servicing and deferment of asset classification norms by RBI were timely interventions that cushioned firms facing cash flow pressures, said Crisil.  (Photo: Mint)Premium
Various relief measures such as the moratorium on debt servicing and deferment of asset classification norms by RBI were timely interventions that cushioned firms facing cash flow pressures, said Crisil. (Photo: Mint)

2 min read . Updated: 27 Jun 2021, 06:06 PM IST Gopika Gopakumar( with inputs from mint_print )

  • However, the annual default rates for firms rated by Crisil dropped to 2% in FY21 despite the pandemic
  • According to Crisil, there have been two defaults from the AA category on account of the pandemic

MUMBAI : Mumbai: Rating agency Crisil expects default rates among corporates issuing debt instruments to rise going forward as pandemic-induced regulatory measures get phased out. That said the annual default rates for firms rated by Crisil rating dropped to 2% in fiscal year 2021 notwithstanding the pandemic, owing to various regulatory measures, it said. The default rate for fiscal year 2020 stood at 4.5%, according to the report.

“Various relief measures such as the moratorium on debt servicing and deferment of asset classification norms by the Reserve Bank of India, its targeted long-term repo operations (TLTROs) and government measures such as the Emergency Credit Line Guarantee scheme were timely interventions that cushioned firms facing cash flow pressures. The relaxation of default recognition norms by the Securities and Exchange Board of India (SEBI) also played its part in providing temporary relief at the peak of the first wave of the pandemic,” said the report.

Crisil had rated nearly 8,000 cooperative issuers, including those issuing bonds, loans etc, with nearly 56% of the ratings in the BB category or lower.

According to the report, there have been 2 defaults from the AA category on account of the pandemic. One was an airport operator whose revenue plummeted because of the sharp decline in passenger traffic. “This led to an acute stretch in the liquidity profile, which was already burdened by large investments for capital expenditure in its subsidiary and significant delays in monetization of real estate, resulting in default,” it said.

The other default was by an apparel retailer which saw a put option exercised by one of the debt investors, even as it is in the midst of a distress slump sale.

In an earlier report, Crisil said the supply of corporate bonds in the domestic market is expected to double to 65-70 lakh crore by fiscal 2025 with the financial sector contributing around 50% to this growth, rating agency Crisil said.

The demand for corporate bonds, however, is likely to be 60-65 lakh crore by March 2025.

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