M&As aborad to carry India Inc's ratings

NEW DELHI: India Inc's overseas buying spree, which includes Tatas' takeover of Corus and Hindalco's acquisition of Novelis, could affect the credit profile of corporate sector this year, rating agency ICRA has said.

"With corporate entities expected to pursue aggressive expansion (including acquisition), the level of leveraging and project risks is likely to increase. Besides, high-value acquisitions may impact their cost competitiveness and capital structures adversely," an ICRA study said.

The study said in case of global recession, the companies involved in manufacturing of commodities such as steel, sugar and aluminium could see some erosion in their credit metrics. This is more so in a scenario where the rupee strengthens and duty levels decline, it said, but added the same scenario may benefit entities in the user industries.

Reserve Bank's measures to tighten liquidity condition is expected to translate into enhanced refinancing risks and higher interest rates. This could bring in stress on firms with relatively inferior credit profiles or those with significant short-term funding mismatches, the study said.

The report said some signs of weakness in the rating trend for the entities rated by ICRA were evident in 2006.

Global rating agency Standard and Poor's had earlier put Tata Steel's long-term corporate rating on 'credit watch' with negative implications following the Corus acquisition.

The ratings of A V Birla group company Hindalco are also expected to come under pressure with the 5.95 billion dollars acquisition of US-based Novelis Inc.

Several more big-ticket acquisitions are in the pipeline for this year. This includes Ranbaxy and Dr Reddy's bid for Merck's generic business and Suzlon Energy's attempt to buy German wind turbine maker REpower Systems AG.