Global rating agency Moody’s on Monday said the high commodity prices and supply chain disruptions due to further escalation in the Russia-Ukraine crisis could expose about 42 per cent of rated Indian companies to significant risks.
They are mainly in the oil and gas and automotive sectors.
The impact may be seen under two scenarios: first, revised base line and second being downside economic scenarios incorporating a global recession and a more severe liquidity squeeze, it said.
The military conflict between Russia and Ukraine is impacting companies in Asia Pacific, adding to existing challenges from supply chain disruption and the coronavirus pandemic.
Moody’s study considers the exposure of rated nonfinancial companies in the region to the Russia-Ukraine crisis.
According to Moody’s, the entities in China, Korea, Indonesia may face similar impact.
On the other hand, most rated companies in Australia, New Zealand, Japan, Hong Kong and Singapore have low risk exposure as high percentage of them are investment-grade companies and tend to be better equipped to withstand the spillover impact.
The sensitivity of each sector reflects three channels of risk transmission.
First is a commodity price shock and supply disruptions.
The second pertains to economic and financial disruption with the tightening of funding conditions and finally, security risks.
The credit implications for companies depend on their direct exposure to each channel, and their capacity to mitigate shocks.
Under downside conditions, although major emerging market countries in Asia such as China (A1 stable), India (Baa3 stable) and Indonesia (Baa2 stable) will avoid entering recessions, their growth rates will slow materially in 2022-23.
As global economic output deteriorates, high-yield spreads widen sharply and refinancing risk rises.
This combination of adverse trends will lead to contagion across several industries and a large number of speculative-grade companies — especially those with maturities coming due in or before 2023, it added.
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