Companies with high domestic ratings may not always be downgraded to investment grade when rated by overseas agencies. Bankers therefore wondered whether the central bank’s reference to eligibility ratings for using the latest scheme applies domestically or even overseas.
The world’s top-rated companies can price bonds or loans based on their brand with a spread of between 100-200 basis points, traders said. However, a company rated as high yield by an overseas rating agency needs to offer a higher offer to attract global banks/investors. A basis point is 0.01 percentage points.
“The recent easing is particularly meaningful for companies rated in the high-yield category by Global Ratings,” one of the people cited above told ET.
On Wednesday, the Reserve Bank of India (RBI) doubled the borrowing limit for local companies to $1.5 billion through the External Commercial Borrowing (ECB) facility under the automatic route.
“The total cost cap under the ECB framework has also been raised by 100 basis points, provided the borrower is rated investment grade,” the RBI said last week.
The threshold is currently capped at 500 basis points. The relaxed rules will only take effect until December 31.
Foreign banks have separately approached the Reserve Bank of India, which declined to comment on the matter.
“For the same rating, the PD of any local rating grade is higher than the global rating,” said Chief Rating Officer K Ravichandran.
Ratings. “This has implications for a local company raising capital globally. The borrower’s offshore rating will be much lower than its onshore rating, as the former is also affected by the country’s sovereign rating.”
A company rated AAA by ICRA may be rated BBB- or Baa3 by international rating firm Moody’s Investors Service.
Moody’s rates 76 Indian borrowers, of which only 31 are investment grade (IG).
In the international market, local companies are generally rated up to the level of India’s sovereign rating, or BBB-, which is the lowest rating in the IG.
There are some exceptions. A local company can be rated a notch or two above a sovereign rating, provided that most of its earnings are denominated in U.S. dollars. This applies to specific industries, including information technology and oil and gas.
With the exception of the AAA rating firms in India, other rating grades in the IG category will not typically find the same rating when rated by an international rating firm. Entities rated between AA and A will find their place in the high-yield category, while others will struggle to find acceptable ratings for raising capital overseas.