Moody's downgrades TCS, Infosys; affirms RIL's rating with negative outlook

Global rating agency Moody's Investors Service on Tuesday downgraded the long-term issuer ratings of eight 'non-financial' companies, including software majors TCS and Infosys along with oil marketing companies ONGC, OIL, IOCL and BPCL. The agency, however, affirmed the long-term issuer rating of billionaire Mukesh Ambani-led Reliance Industries, but warned that it could be lowered if the Indian sovereign rating is further downgraded.

The agency downgraded the long-term issuer ratings of eight non-financial companies - Oil and Natural Gas Corporation Ltd (ONGC), Hindustan Petroleum Corporation Ltd (HPCL), Oil India Limited (OIL), Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Limited (BPCL), Petronet LNG Limited, Tata Consultancy Services Limited (TCS) and Infosys Limited. The outlook on all these companies remains negative. The rating actions follow the downgrade of India's sovereign rating to Baa3 negative from Baa2 on June 1, 2020.

Meanwhile, the ratings agency has affirmed the long-term issuer ratings of UPL Corporation Limited and Genpact Limited with stable outlook.

Moody's has cut Tata Consultancy Services (TCS), the country's largest software exporter, rating to Baa1 negative from A3 negative in wake of downgrade of India's sovereign rating. The agency said that TCS' rating will not be upgraded unless India's sovereign rating is upgraded, which is unlikely given the negative outlook.

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The American rating agency warned that IT major's rating could also be downgraded if it provides support to its affiliate companies other than through its parent, Tata Sons, and undertakes material debt-funded acquisitions or increases its returns to shareholders, significantly undermining its credit profile.

In line with rival TCS, Moody's has also lowered Infosys' rating to Baa1 negative from A3 negative, which is unlikely to be upgraded unless India's rating is upgraded. The agency said that Infosys' rating can be further downgraded if it undertakes material debt-funded acquisitions or increases returns to shareholders that significantly undermine its credit profile, or its operating performance deteriorates significantly.

Also Read: Moody's cuts India's sovereign rating to Baa3, maintains negative outlook

In case of Reliance Industries (RIL), the rating is unlikely to be upgraded over the next 12-18 months due to negative outlook, Moody's said. The outlook could return to stable if the stance on India's sovereign rating returns to stable.

The agency said that RIL's rating could also be downgraded if its credit metrics deteriorate as a result of protracted weakness in its operations which results in significantly lower earnings beyond Moody's expectations. Adding to it, delay or cancellation of planned stake sales in its business segments and large debt-funded capital spending or acquisitions could also impact the firm's rating.

In the last one month, RIL has raised a total of Rs 78,562 crore by selling minority stakes in its digital arm, Jio Platforms to Facebook as well as private equity firms such as General Atlantic, Vista Equity, Silver Lake, and KKR.