India And China Have The Most Risky Corporate Debt In Asia
India’s high share of corporate debt is held by a small number of weak firms, Moody’s said.
India and China are most at risk from high corporate leverage in the Asia-Pacific region even as most economies see a slowdown in debt accumulation amid higher economic growth expectations.
Around 17 percent of the corporate debt in India was at the risk of a default by 2016-end, as it is held with companies with interest coverage ratios less than one, according to a report by Moody's Investors Services. For China, the same metric stands at 15 percent.
While this is lower than Indonesia, where 20 percent of the corporate debt is at risk, India and China have relatively higher debt to equity ratios at 98 percent and 88 percent respectively. This essentially suggests that Indian corporate debt is almost as much as the book value of their equity.
But it’s not all bad. India has managed to rein in its corporate debt to less than half of its gross domestic product. Corporate credit forms 47 percent of India’s GDP. For China, that number is way higher, with corporate credit at 166 percent of the GDP.
Besides, large amount of the Indian corporate debt is held by a few weak firms.
In India, we observe that the high share of debt owed by weak corporates is explained by a relatively small number of very large borrowers.Moody’s Investors’ Services
In terms of improving the credit gap, India has outperformed all other Asian economies. Over the last three years, corporate credit, as a ratio of GDP, has declined 6 percent in India, while it has risen 26 percent in China.
However there's one risk. If interest costs grow by 25 percent over one year, the share of debt owed by weak firms in India and China would "grow notably",