India's largest engineering and construction company, Larsen & Toubro (L&T), is expecting better access to letters of credit (L/Cs) as a result of ratings higher than the sovereign's 'BBB-' rating.

Global credit rating agencies S&P and Fitch have assigned 'BBB+' rating to Larsen & Toubro (L&T), on the basis of the company's robust operational performance, financial discipline and strong market position.

L/C advantage

"This milestone will enable us to bid for more international projects both independently and through joint ventures," Shankar Raman, president, whole-time director and chief financial officer said in an interview.

"We will now intensify engagements with international banks, who will be better positioned to issue bank guarantees and L/Cs, facilitating our access to credit facilities and strengthening our financial obligations," he added.

S&P Global Ratings

The 'BBB+' rating from S&P endorses what the ratings agency describes as the company's resilient operating performance and stable cash flow generation.

According to S&P, L&T's leadership in the Indian engineering and construction sector, its growing presence in the Middle East and stable earnings from its IT businesses are expected to enable the company to maintain its strong financial position over the next 24 months.

Fitch Ratings

The 'BBB+' from Fitch highlights L&T's strong market position in infrastructure, hydrocarbons, heavy engineering, IT and high-tech industrial products.

The rating reflects L&T's above-average profitability, solid revenue visibility and consistent margins supported by effective risk management and diversification into high-margin IT and technical services.

A substantial order backlog of US$57 billion ensures strong revenue growth prospects, driven by infrastructure initiatives in India and increasing orders from Saudi Arabia and neighbouring countries in the Gulf, according to Fitch.

Two notches above sovereign

The 'BBB+' international rating with a stable outlook assigned to L&T by both these rating agencies is two notches above India's sovereign ratings of 'BBB-', underscoring the company's exceptional credit quality and robust financial health.

This achievement positions L&T alongside Reliance Industries as the only Indian conglomerates with such high creditworthiness.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.