01-31-2007, 12:34 PM
Good news for India despite the predictions of 108 Shri Mudy Maharaj
Quote
MAXIMUM INDIA
S&P upgrades India rating
Investment Grade To Allow Cos To Raise Cheaper Loans Overseas, Lure Foreign Funds & Lift Credit Ratings Of Indian Banks, FIs
Our Bureaus MUMBAI/NEW DELHI
IT'S a rebuff to sceptics who are yet to buy the India story. The world's largest rating agency, Standard & Poor's (S&P), has upgraded the country's sovereign rating to "investment grade".
The move will allow Corporate India to raise cheaper loans in overseas money markets, pave the way for international funds that avoid investing in speculative grade, and automatically lift the credit ratings of several Indian banks and financial institutions.
With this, for the first time in 15 years, all three global rating agencies, including Moody's and Fitch, have placed India in "investment grade". The decision marks a dramatic reversal of the situation in 1991, when S&P downgraded India to below investment grade following the balance of payments crisis.
The upgrade "reflects the country's strong economic prospects and external balance sheet, and its deep capital market, which supports a weak but improving fiscal position", said an S&P release. The sovereign rating now stands at BBB- from BB+. The `stable' outlook signifies there is no threat to the present rating but substantial improvements are required for a further upgrade.
I am happy. It is an acknowledgement of India's improving macroeconomic stability and strength," finance minister P Chidambaram said soon after the announcement.
W H AT T H E U P G R A D E M E A N S . . .
CORPORATE
Indian cos, banks can
bargain for cheaper overseas loans
More merger &
acquisition, LBO opportunities for Indian Inc
MARKETS
Higher inflows
could partly offset a rate hike impact
Pension and other
global funds with low-risk appetite can now invest
ECONOMY
India exposure
limits for foreign banks to rise
Increased inflow
of foreign direct investments into the country
Indiaâs much sought-after destination for investors
EVEN with the upgrade, countries like China, Malaysia, South Korea, Thailand, South Africa and Russia have higher ratings than India while Mexico and a few East European countries are at the same level as India. However, India is still a more sought-after destination due to its growth potential and the fact that it has the largest number of institutions whose ratings are constrained by the sovereign rating.
âThe concern over fiscal consolidation has waned. The growth rate is sustainable and though debt levels are high, revenue collections are good...Since India has had a volatile rating history, S&P possibly wanted to wait and make sure there is enough conviction behind the move,â said R Ravimohan, CEO of Crisil, the Indian subsidiary of S&P.
The announcement crystallises the expectations built in by FIIs. It also opens the doors for a number of international funds, which by their charter are not allowed to participate in speculative grade investments, according to economist Saumitra Chaudhuri.
Institutions that now stand upgraded to investment grade are SBI, ICICI Bank, IDBI, Bank of India, Indian Overseas Bank, UTI Bank, Exim Bank, Power Finance Corp and IRFC. All these institutions will now have a wider choice of investors and consequently cheaper foreign loans. Mr Chaudhuri said Indian corporates are already getting a good spread as there are no big borrowers, primarily because of the lack of paper from India. But the rating will be able to get a good spread when borrowings increase.
According to S&Pâs credit analyst Ping Chew, âFiscal consolidation commitments across all levels of governments look to be entrenched.â S&P expects both central and state governments to be able to manage the fiscal vulnerabilities.
The central governmentâs budget deficit for the current year seems to be back on track to meet its target of 3.8% of GDP due to strong revenue collections. Estimates for the current year suggest that the combined central and state government deficit is likely to fall below 7% of GDP. There is enough tax elasticity in the system to support growth in revenue. For states, implementation of VAT has resulted in robust revenue growth.
The secular decline in general government deficits in the medium term is likely to continue due to tax reform and improved administrations, and implementation of fiscal responsibility laws across more state governments, currently enacted by 23 out of 29 state governments. Indiaâs external balance sheet is strong due to reserves accumulation and prudent debt management. Foreign exchange reserves are more than 16 times the short-term debt and 5 times the countryâs gross financing requirements and provide a buffer from changes in external and domestic investor confidence.
Mr Chew doesnât see the rising current account deficit weakening the strong external sector because despite deficits, capital inflows will be strong. Even liberalisation of the capital market is not expected to impact the external sector. But certain concerns remain as India is still constrained by a weak fiscal profile, especially high government debt burden and deficit, which is still one of the worst among all rated sovereigns.
Further rating improvements will depend on sustained prudent fiscal policy that leads to a decline in the debt and interest burden. Inappropriate policy mix that increases the vulnerability of Indiaâs still weak fiscal flexibility and erodes external and growth strengths could lead to downward pressures on the rating.
Unquote
Quote
MAXIMUM INDIA
S&P upgrades India rating
Investment Grade To Allow Cos To Raise Cheaper Loans Overseas, Lure Foreign Funds & Lift Credit Ratings Of Indian Banks, FIs
Our Bureaus MUMBAI/NEW DELHI
IT'S a rebuff to sceptics who are yet to buy the India story. The world's largest rating agency, Standard & Poor's (S&P), has upgraded the country's sovereign rating to "investment grade".
The move will allow Corporate India to raise cheaper loans in overseas money markets, pave the way for international funds that avoid investing in speculative grade, and automatically lift the credit ratings of several Indian banks and financial institutions.
With this, for the first time in 15 years, all three global rating agencies, including Moody's and Fitch, have placed India in "investment grade". The decision marks a dramatic reversal of the situation in 1991, when S&P downgraded India to below investment grade following the balance of payments crisis.
The upgrade "reflects the country's strong economic prospects and external balance sheet, and its deep capital market, which supports a weak but improving fiscal position", said an S&P release. The sovereign rating now stands at BBB- from BB+. The `stable' outlook signifies there is no threat to the present rating but substantial improvements are required for a further upgrade.
I am happy. It is an acknowledgement of India's improving macroeconomic stability and strength," finance minister P Chidambaram said soon after the announcement.
W H AT T H E U P G R A D E M E A N S . . .
CORPORATE
Indian cos, banks can
bargain for cheaper overseas loans
More merger &
acquisition, LBO opportunities for Indian Inc
MARKETS
Higher inflows
could partly offset a rate hike impact
Pension and other
global funds with low-risk appetite can now invest
ECONOMY
India exposure
limits for foreign banks to rise
Increased inflow
of foreign direct investments into the country
Indiaâs much sought-after destination for investors
EVEN with the upgrade, countries like China, Malaysia, South Korea, Thailand, South Africa and Russia have higher ratings than India while Mexico and a few East European countries are at the same level as India. However, India is still a more sought-after destination due to its growth potential and the fact that it has the largest number of institutions whose ratings are constrained by the sovereign rating.
âThe concern over fiscal consolidation has waned. The growth rate is sustainable and though debt levels are high, revenue collections are good...Since India has had a volatile rating history, S&P possibly wanted to wait and make sure there is enough conviction behind the move,â said R Ravimohan, CEO of Crisil, the Indian subsidiary of S&P.
The announcement crystallises the expectations built in by FIIs. It also opens the doors for a number of international funds, which by their charter are not allowed to participate in speculative grade investments, according to economist Saumitra Chaudhuri.
Institutions that now stand upgraded to investment grade are SBI, ICICI Bank, IDBI, Bank of India, Indian Overseas Bank, UTI Bank, Exim Bank, Power Finance Corp and IRFC. All these institutions will now have a wider choice of investors and consequently cheaper foreign loans. Mr Chaudhuri said Indian corporates are already getting a good spread as there are no big borrowers, primarily because of the lack of paper from India. But the rating will be able to get a good spread when borrowings increase.
According to S&Pâs credit analyst Ping Chew, âFiscal consolidation commitments across all levels of governments look to be entrenched.â S&P expects both central and state governments to be able to manage the fiscal vulnerabilities.
The central governmentâs budget deficit for the current year seems to be back on track to meet its target of 3.8% of GDP due to strong revenue collections. Estimates for the current year suggest that the combined central and state government deficit is likely to fall below 7% of GDP. There is enough tax elasticity in the system to support growth in revenue. For states, implementation of VAT has resulted in robust revenue growth.
The secular decline in general government deficits in the medium term is likely to continue due to tax reform and improved administrations, and implementation of fiscal responsibility laws across more state governments, currently enacted by 23 out of 29 state governments. Indiaâs external balance sheet is strong due to reserves accumulation and prudent debt management. Foreign exchange reserves are more than 16 times the short-term debt and 5 times the countryâs gross financing requirements and provide a buffer from changes in external and domestic investor confidence.
Mr Chew doesnât see the rising current account deficit weakening the strong external sector because despite deficits, capital inflows will be strong. Even liberalisation of the capital market is not expected to impact the external sector. But certain concerns remain as India is still constrained by a weak fiscal profile, especially high government debt burden and deficit, which is still one of the worst among all rated sovereigns.
Further rating improvements will depend on sustained prudent fiscal policy that leads to a decline in the debt and interest burden. Inappropriate policy mix that increases the vulnerability of Indiaâs still weak fiscal flexibility and erodes external and growth strengths could lead to downward pressures on the rating.
Unquote