Don't understand Moody's rating downgrade logic: L&T


"I do not understand their (Moody's) logic... May be they are doing it based on global practices... As far as we are concerned, there is no cause for concern regarding our debt levels," L&T Director (Finance) Y M Deosthalee told PTI.
Earlier in the day, the global rating agency had warned that its credit rating on L&T could be downgraded due to increase in its consolidated debt levels and cut its outlook from 'stable' to 'negative.'
Currently, Moody's has 'Baa2' rating -- a medium grade rating reflecting moderate credit risk -- on L&T.
Reacting to Moody's action, Deosthalee said the rating agency has taken into account the debts on various Special Purpose Vehicles (SPVs) floated by L&T, and on stand-alone basis the company had no net debt at all.
"The consolidated debt has gone up, but on stand-alone basis, there is no net debt. It's actually negative," he said.
Deosthalee further added that L&T has got only reputational obligations towards the SPVs implementing its various infrastructure projects and the parent has not extended any support or guarantee to them, based on whose debts Moody's has warned of a possible rating downgrade.

The SPVs have their own finances and cash-flow streams and many of them were in early stages of implementation and could soon record cash inflows, he noted.
Deosthalee further added that there was no cause for concern even on the consolidated debt front, as cash flow was expected to start soon at a number of SPVs.
"Debts of these kind are anyway bound to happen in a growth-oriented business... We are not worried at all," he added.
"The change in outlook reflects the increase in L&T's consolidated debt, which is higher that our previous expectations as a result of the company's rapid growth plans," Moody's said explaining its action.
L&T's consolidated debt has increased from Rs 6,430 crore to Rs 18,400 crore over the last two years, Moody's said, adding that its "key credit metrics could exceed the tolerance levels set for its rating over the near to medium term as a result of the group's strategy to increase its business diversity by entering into new ventures along with expanding its infrastructure portfolio and supporting its finance subsidiaries."

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