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Commodity downturn to hit local metal firms: Moody’s |
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KOLKATA: The global downturn in commodities is exceptionally severe and is expected to be a major factor driving the number of defaults higher in 2016, Moody's Investors Service has said. In its latest report, titled 'Growing Stress in Commodity Sectors is a Credit Hazard for 2016', the agency said falling commodity prices have placed a significant strain on credit quality in oil and gas, and metals and mining, the two sectors which account for a disproportionately large 36% of downgrades and 48% of defaults respectively among all companies across the world this year.
While most Indian metal companies are expected to fare better than their peers elsewhere, the domestic companies are likely to see contraction in earnings, the agency said. In domestic oil and gas sector, the impact will vary between government and private companies though both are likely to face the adverse impact of falling prices, it said. "Indian metal companies, as opposed to their global counterparts are relatively better placed as demand fundamentals remain strong in India, with GDP growth rates of 7.6% next year, although commodity price decline will likely result in earnings contraction and high leverage levels over the next 12-18 months," Kaustubh Chaubal, vice-president, corporate finance, at Moody's Investors Service told ET.
The China slowdown and commodity price decline will continue to have a negative impact on Indian metals and mining companies as India sees persistent cheaper imports, Chaubal said. "Notwithstanding some of the steps taken by the government such as increase in import duties on steel or the imposition of a safeguard duty on certain categories of hot rolled coils, steel companies continue to face pressure on realisations," he said. While upstream domestic oil companies will be adversely affected by sliding prices, the impact will vary between state-owned and private companies.
Vikas Halan, vice-president, corporate finance group, at Moody's Investors Service said, "Private sector companies will be affected to the same extent as global companies as both oil and natural gas are sold at prices linked to international benchmarks. For government-owned companies, the decline in oil prices will be partly cushioned by the corresponding decline in fuel subsidies." Refining and marketing companies will likely benefit from the low oil prices as softening of prices pushes up refining margins. Singapore refining margins have moved up to $7.1 a barrel in the six months to September from $6.3 a barrel in March end, Halan said. Mariarosa Verde, a Moody's Group Credit Officer and lead author of the report said, "Commodity sectors are facing staggering adverse conditions driven by a potent mix of slower-thanexpected global demand and excess supply."
Source : economictimes.indiatimes.com
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