Stronger Ratings Boost L&T's Global Order Book Ambitions

16 Jul 2024 , 01:31 PM

After obtaining global credit ratings better than the sovereign’s, Larsen & Toubro Ltd., the largest engineering and construction company in India, anticipates an increase in its overseas operations while the domestic market slows.

“This significant accomplishment will allow us to submit proposals for additional global projects, both on our own and through partnerships,” full-time director and chief financial officer R Shankar Raman stated in a recent interview.

Earlier this month, the corporation received its first BBB+ rating from Fitch Ratings Inc., which is two tiers above the sovereign. It was ranked similarly by S&P Global Ratings in May. As a result, L&T and Reliance Industries Ltd. are the only two Indian companies having ratings higher than the sovereign globally.

However, Raman says the company has no imminent intentions for offshore fundraising because its operating cash flows are sufficient, even with the international credit ratings.

Rather, as the local industry appears to be slowing down, the move is anticipated to assist the engineering powerhouse secure more support from foreign banks when vying for contracts abroad.

“We will now step up our interactions with foreign banks, as they will be in a better position to provide bank guarantees and letters of credit, which will strengthen our financial commitments and make it easier for us to obtain credit facilities,” Raman declared.

Over the past four years, L&T’s foreign orders have been growing substantially; the percentage of these orders in its order book increased from a quarter in the fiscal year that ended in March 2020 to 38% in March 2024.

According to Raman, the majority of overseas orders are associated with oil and gas, renewable energy, and urban infrastructure projects in the Middle East, with Saudi Arabia, the United Arab Emirates, Qatar, and Kuwait being the top spending countries.

Saudi Aramco, one of the biggest customers in the area, is anticipated to invest $48 billion to $58 billion in capital projects this year. According to Raman, Larsen & Toubro intends to interact more with the largest oil exporter in the world. He continued by saying that L&T hopes to get 10% of Saudi Aramco’s yearly spending each year.

This year, L&T’s shares have increased by roughly 4%, while the benchmark NSE Nifty 50 Index has gained by 13%.

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