Make hay while the sun shines. This adage, however, does not hold true for the rating agencies. At least, not at this moment.
These agencies are having a field day when the gloom of industrial slowdown envelopes the economy.
Business volumes of rating companies during the first quarter have turned out to be the highest in recent years while the industrial growth measured in terms of index of industrial production slumped to 1.9 per cent in May as against 6.0 per cent during the corresponding period of the last year.
Rating agencies attribute the lower interest rate regime, that has prompted corporates to retire old high-interest debts and refinance the same through fresh borrowings at lower rates, as the main reason for the sudden spurt in business volumes.
The volume of new issues in the corporate debt market rose to Rs 21,000 crore in the first three months of the current financial year, up from Rs 14,000 in the corresponding period of the last financial year.
Rating being necessary for getting loans at a lower rate of interest, the surge in volume of new issues is the main driver of business for these agencies. The corporates have started getting themselves rated for private placements as well.
Ravi Mohan, managing director, Credit Rating and Information Services of India Ltd (Crisil), says business is "satisfactory" but refuses to describe it as "roaring".
He expects the trend to continue and the business of the rating agencies to grow at a rate of 25 per cent during the current financial year.
The first three months of the current financial year runs contrary to the previous trend when rating agencies witnessed a dull season, says Rajesh Mokashi, executive director, Credit Analysis and Research Ltd.
Says the Crisil managing director: "There has been a substantial growth in the rating business as corporates, taking advantage of the lower interest rate regime, have been raising loans to refinance their old debts. We have observed the same corporates coming to the market time and again to raise funds."
Yields of the five-year triple A (AAA) rated non-convertible debenture fell by more than a percentage point to 9.40 per cent during the first quarter while the yields of the three-month commercial paper dropped by 150 basis points to 8.35 per cent.
Mokashi points out that despite corporates having to pay a premium for prematurely retiring old debts, substituting them with fresh loans at lower interest rates turns out to be beneficial.
Mokashi adds: "Loans raised so far during this financial year are not only for substituting the high cost loans raised earlier, but corporates are also issuing debt papers for projects in the pipeline."
