Moody’s Shifts 6 Stocks Out of “Fallen Angels” List

In the lexicon of Moody’s, one of the leading rating agencies in the world, Fallen Angels refers to companies that are financially vulnerable and are most at risk of a possible rating downgrade. In the aftermath of COVID-19 pandemic, the list of Fallen Angel companies in Moody’s Asia list had spiked considerably. As late as September 2021, there were 19 companies in the Asia Fallen Angels list. As of 31-Oct, that list stands reduced to 12.

What is interesting is that out of the 7 stocks that Moody’s dropped from the Fallen Angels list, 6 are Indian companies. That means, these 7 companies are no longer vulnerable to a rating downgrade. In the Indian context, this spate of 6 exits from the Fallen Angels list was triggered after Moody’s raised India’s rating outlook from negative to neutral. However, the rating remained at Baa3. This will be enable the companies to raise debt at lower cost.

The 6 Indian companies that exited the Moody’s Fallen Angels list included ONGC, Oil India, Indian Oil Corporation, Petronet LNG, Hindustan Petroleum and Ultratech Cement. Out of the six companies to exit the Fallen Angels list, five are from the PSU space while only Ultratech is a private sector company belonging to the Aditya Birla group.

According to Moody’s the progressive easing of pandemic restrictions, recovery in economic growth, improvement in the health of banks and corporates as well as sustained government support were seen as major positives. This, combined with the outlook upgrade, had reduced the vulnerability of Indian companies to extraneous factors. This had resulted in 6 out 7 companies exiting the Asia Fallen Angels list being Indian companies.

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While the 6 Indian companies above were upgraded to “Baa3 Stable”, the only Indian company to remain in the Fallen Angels list (ex-Japan & Australia), is BPCL. Moody’s has cited uncertainty over its ownership structure in the light of the delayed privatization as a key reason. Since there was uncertainty surrounding capital structure, liquidity and management, Moody’s had retained BPCL as “Baa3 Negative”.

Potential fallen angels have to contend with higher cost of debt and hence refinancing becomes more expensive. One more risk is that these fallen angels could also crowd out the lower rated companies from the debt market. This could be negative for companies that are highly leveraged. This move is positive for Indian PSUs overall.