Nearly Rs. 4lakh crore worth debt held by Real Estate and Telecom companies being written off

At least Rs 4 lakh crore of debt held by India’s top borrowers faces the risk of being written off as these companies face an issue with cash flows because of a build¬up in non-productive assets during the last five years, credit rating agency Indian Ratings and Research said on Tuesday.

The ratings agency analysed asset funding trends for the top 500 companies in India which showed that 240 out of the 500 companies may be classified as vulnerable with an overall debt of Rs 12.4 lakh crore.

“Economic recovery will marginally benefit these entities. Structural mismatch in cash flow and relatively high proportion of non¬productive assets will need to be addressed to restore debt sustainability. Banks may find it difficult to fit such corporates in the Scheme for Sustainable Structuring of Stressed Assets (S4A). Corporates operating in sectors such as infrastructure and construction, sugar, consumer durables, engineering and equipment, airlines and trading primarily fall in this category,” India ratings said.

The ratings agency estimates that Rs 7.4 lakh crore debt held by companies with an incremental build¬up of non¬productive assets during fiscal year 2011 to 2016 face a cash flow recovery risk. It classifies 260 out of the 500 companies as nonvulnerable out of which 26 companies with debt of Rs 3.4 lakh crore have a relatively high proportion of non¬productive assets.

These are mostly real estate and telecom companies and will have to use equity investments to deleverage and improving their capital structures. The rating agency said 234 entities, which hold Rs 14.3 lakh crore debt, of the 260 non-vulnerable corporates are well positioned on account of their strong profitability, healthy capital structure and asset quality levels.