India Inc may pierce S&P's India rating

Move to help companies tap overseas loans at finer rates.

Good news for India Inc. Global rating agency Standard & Poor's Rating Services is bracing itself to allow Indian companies to pierce the sovereign rating.

"We are seriously looking into the issue (of giving Indian corporates better than the country rating). It may happen soon," said a senior S&P executive.

This will have enormous implications for Indian companies. If a corporate entity is offered a better rating than India, it will enable the entity to shop for overseas loans at a finer price.

S&P's impending move is the outcome of India having liberalised its foreign exchange regulations. Corporate ratings have traditionally been constrained by the country rating. Another global rating agency, Moody's Investor Service, in 2002 gave better ratings to Indian corporates than the country.

"We are seeing that the Indian government is liberalising (forex regulations). Some corporates can get a better rating than the country. We will consider (that)," said the S&P executive.

In December last year, S&P revised the outlook on India's long-term foreign currency rating from negative to stable but kept the rating unchanged at sub-investment grade BB. India's long-term local currency rating is BB+ with a negative outlook. If it actually allows Indian companies to pierce the sovereign rating, companies may get an investment grade rating even if there is no change in India's rating.

In 2002, Moody's gave ICICI a better rating than the country's rating. It upgraded the long-term foreign currency bond rating of ICICI from Ba 2 (the sovereign rating for India at that time) to Ba 1, a notch above. That upgrade was the outcome of Moody's decision to allow the ratings of bonds of certain qualified issuers to pierce their country ceilings.

The other Asian company, which was upgraded above the sovereign rating at that time was Petronas of Malaysia.