India Ratings: 'Over-leveraging' is major concern for Indian firms

April 5, 2013

India Ratings’ Managing Director and CEO Atul Joshi held that most of the Indian companies have seen rating downgrades in the recent past due to over-leveraging. He also held that:
“the over-leveraging is mostly seen in terms of debt-to-equity, but we at credit rating agencies do not look at it that way. What we look at is debt to EBITDA or the company’s cash flow position, which defines the entity’s earnings ability to service the debt. When this ratio crosses a certain limit, the question mark arises whether it will be able to service the debt and at that time a red flag is raised. The debt-to-equity ratio could be a static data, so we look at the cash flow position as well to take into account the prevailing factors to decide over-leveraging”
Joshi said that it is the over-leveraging by Indian companies that has been mostly responsible for negative rating actions, thus making it difficult for them to raise debts.