S&P examining Instrumentation, HMT

Standard & Poor's said that, following a news report in a major Indian newspaper, it is examining the circumstances surrounding missed interest payments in late December by Instrumentation Ltd. and HMT Ltd., two public sector companies under India's Ministry of Heavy Industries.

The missed payments on the bond issues, which are reportedly guaranteed by the Indian government (BB+/stable/B), have become the direct obligation of the government, and hence progress in fulfilling these obligations has potential implications for the sovereign's credit rating.

S&P said outstanding general government guaranteed debt has consistently been about 10% of GDP, highlighting the Indian government's predilection to extend guarantees to public sector entities, which translate into a sizable contingent liability for the sovereign.

The general government's high debt level at 81.2% of GDP in 2004, coupled with its extensive contingent liabilities, constitute the key constraining factors for the ratings on India.

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