The Hindu Business Line : Expansion, poor demand weaken financials of South Asian cos

Mumbai, Sept 11 Three quarters of the South Asian companies rated by Standard & Poor’s are either on a negative outlook or on credit watch with negative implications. This is due to negative outlook on the sovereign ratings on the Republic of India (BBb-/Negative/A-3), challenging operating conditions and weakening financial profiles of the rated entities, said S&P in a release.

Stimulus effect

While sectors such as infrastructure have benefited from Government stimulus, other core sectors remain vulnerable to global economic conditions, S&P said. IT and telecommunication sectors seem to have weathered the downturn relatively well, while the automobile, metals and mining sectors seem to have suffered the most.

Cos affected

Companies such as Infosys and TCS have been hit by their reliance on exports, while companies such as Tata Motors and Tata Steel were hit by their recently acquired overseas operations in Europe, the release said.

Companies such as Vedanta and Reliance Industries have been somewhat negatively affected by the globally recessionary economic conditions as they are reliant on exports or operations outside India.

However, Vedanta, Tata Steel, and Tata Motors have also benefited from recovering domestic demand in India.

The report listed the following as factors likely to influence the credit quality of South Asian corporate in 2009-10: ability to bolster operating cash flows through cost cutting, reduction in capital expenditures and asset divestments; debt management in the current difficult market conditions; managements’ appetite for acquisitions and the manner in which the acquisitions are funded and extent of economic growth in their own geographies as well as in other parts of Asia, Europe and the US.

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