Higher payments from refineries, shifting of bank-credit market, among others, are reducing debt
Over a thousand companies have settled debt of Rs 95,000 crore to banks according to Ecowrap put out by the State Bank of India (SBI) economic research wing. Higher repayments from refineries due with oil prices coming down, asset sale by telecom companies and also, the shifting of the bank-credit market to the commercial-paper market (bonds) for lower rates, is increasing the pace of corporate-loan repayments.
Soumya Kanti Ghosh, chief economic advisor of SBI told DNA Money, "Refinery and telecom appear to making more than normal while finance may not fall in the category. Asset sale in the telecom sector and the reduction in oil prices may be some of the reasons for faster repayments. Some pockets are aggressively reducing debt while others like iron and steel and construction have just started.
"From a list of more than approximately 4,000 entities assessed, more than 1,076 entities reduced their loan funds in half year ending September 2016 over half year ending 2015 by about Rs 95,000 crore on a standalone basis. While these entities have seen the positive effect of lower-interest cost percolating down to the bottomline, the topline is seeing some degrowth," the report added.
RK Bansal, executive director, IDBI Bank told DNA Money, "We also had a couple of large corporate repayments after companies raised bonds overseas. There is deleveraging happening by good companies. And many companies are preferring to take the commercial paper (CP) or bonds route for cheaper rates and banks are also forced to invest into the CPs. In some cases, private banks also refinance loans so repayments in one bank may look higher."
The largest debt repayments are coming from refinery, finance and telecom entities. Steel and construction sector are also deleveraging. Going forward, the demonetization effect is also likely to rub on topline of these entities. However, we await the results still.
"The good thing is that despite reduction in net sales by 6.48% for the period H1FY17 vis–a-vis H1FY16, the profit after tax( PAT) improved 68.5% during the same period for the same set of companies. Also, with reduction of loan fund level of 11.5%, companies were able to reduce the interest cost by 6.45%," the report added.
Jaiprakash Associates sold off its cement plant in six states to Ultratech in a Rs 16,500-crore deal. Similarly, in the telecom sector, there were asset sales by Aircel and Reliance Telecommunications which helped them repay the debts.
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