JAKARTA (TheInsiderStories) – As of June, number of companies most at risk of losing their investment-grade ratings, potential fallen angels, in Asia, excluding Japan and Australia, climbed to 21 from 8 at the end of 2019, due to lower earnings and cash flow caused by the global coronavirus shock. Some have joined the list following India’ downgrade (Baa3 negative), given their links to the government.
India’ sovereign rating downgrade has created six “fallen angels” in the non-financial sector whose ratings have dipped to just one notch away from being considered junk. Companies that move from investment grade category to sub-investment grade are sometimes referred as “fallen angels”.
Potential fallen angels now account for just over 10 percent of our investment-grade portfolio, which is still below the 16 percent recorded in May 2009 but at an all-time high in terms of absolute numbers. Aside from the six Indian government-related or linked companies, these companies operate in sectors most exposed to coronavirus disruptions, including auto, steel and REITs.
Altogether, the 21 potential angels have around US$3.3 billion of rated bonds maturing through 2021, with government-related or linked companies accounting for nearly one third of this amount. Historically, the transition from potential to actual fallen angels has been quite low, but there have been some surges.
For an example, 2008 and 2009 saw the largest number of fallen angels, with nine companies downgraded to high-yield from investment-grade during that period. If the number of actual fallen were to rise, high-yield bonds’ refinancing needs would have the potential to crowd out lower-rated companies and in turn increase their refinancing costs. This scenario would drive credit differentiation, with refinancing risk for weaker and higher leverage companies likely to rise.
All these six companies are state-owned enterprises in the oil and gas sector include Indian Oil Corporation, Hindustan Petroleum Corporation, Oil India, Petronet LNG, Bharat Petroleum Corporation and Oil and Natural Gas Corporation have US$1 billion of rated bonds coming up for repayment till 2021. The fundamental credit profiles of all of them are intact.
Addition of the six Indian companies to the “fallen angels” took the list to an all-time high of 21 in Asia as of early June. The quantum of names in the list has doubled due to the COVID-19-19 pandemic and the Indian sovereign downgrade.
These 21 companies have over $12.3 billion of outstanding bonds maturing in 2021, of which $3.3 billion are rated and nearly a third of it is the addition from the six Indian players. Since 2008, the fallen angels list has been dominated by Chinese companies, but lately, its companies from India and South Korea taking the number up.
We had downgraded its rating on India by a notch recently on worries over growth and the fiscal strain. The rating is the last level in the category classified as “investment grade” at present.
by Annalisa Di Chiara from Moody’s Investor Service