Debt Obligations: Construction, IT And Metal Companies Facing The Heat

BANGALORE: It is not the airline industry alone that is facing the debt wall, but there are several other industries like construction, IT and metal companies that have seen huge erosion in shareholders’ wealth. The worst scenario is that the money some of these companies make from their operations does not even cover the interest payments of their debt obligations, as reported by Rediff.

According to the Credit Suisse Securities report entitled ’Corporate financial health tracker’, 36 percent of the companies that were examined had an interest coverage ratio of less than one, which means their interest payment option is greater than what they earn from their daily operations. The report which examined data for 3,700 firms mainly non-financial companies, and found that their total debt was accounted to $400 billion.

“The share of debt with chronically stressed corporates declined to 26 per cent (in the fourth quarter of 2013-14) versus 31 percent in the third quarter (3Q14). However, the share of debt with companies having an IC less than one for eight consecutive quarters increased to 35 percent versus 29 percent in 3Q14 and the aggregate interest cover worsened marginally to 2.5x,” said authored research analysts Ashish Gupta, Prashant Kumar and Kush Shah.

Deepak Jasani, head of retail research HDFC Securities said,  “Mid-scale or small-scale companies have faced a problem due to slowdown in the past few quarters. But if the economy improves, as it is expected to, these companies might see better days. Of the 36 percent, 15-20 percent might not be able to improve on their situation; some others might be able to take advantage of the improved sentiment.” 
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