RBI cash, yields draw investors to dollar bonds

By Rahul Satija


Bargain-hunting investors are increasingly moving into Indian dollar bonds, and central bank support unveiled Wednesday may further that trend even as the nation grapples with a tragic surge in Covid cases.

• The Reserve Bank of India will inject 500 billion rupees ($6.8 billion) of liquidity and allow new loan-relief for small businesses, Governor Shaktikanta Das said in surprise statement on Wednesday
• Even before the RBI move, bargain-hunting investors had already begun to get into the country’s dollar bonds, lured by juicy yields after a selloff in the first half of April amid surging Covid cases

• Indian dollar bonds gained 0.7% in the two weeks to May 5, more than the 0.3% rise in a broader Asian dollar bond gauge, according to Bloomberg Barclays indexes; Indian notes had lost 0.2% in the previous two weeks as compared to a 0.3% gain for broader Asian bonds
• “Yield-starved offshore investors flushed with liquidity are bargain hunting for Indian dollar bonds, given attractive spreads after a selloff in the first half of April,” said Raj Kothari, head of trading at Posco Capital Partner Plc
• The Federal Reserve’s pledge last week to keep its accommodative monetary policy has reignited a dash for yields in emerging-market assets. Read more about rally in Southeast Asian credit here
• Still, Indian note buyers will have to contend with uncertainty emanating from the world’s biggest health crisis that may get worse in the coming weeks before easing, with some research models projecting the death toll due to the virus could more than double from current levels
• “While the economic fallout of the pandemic is still a key concern for investors, they expect increasing foreign aid and steps toward vaccinations to help the nation deal with the second wave of coronavirus infections,” Kothari said

Primary Issuance — Going Green

• Indian firms have issued a record $3.4 billion green dollar bonds so far this year, Bloomberg-compiled data shows. JSW Hydro Energy Ltd. plans to further boost such sales and join six other borrowers, including Greenko, ReNew Power and Continuum Energy
• JSW Hydro began investor calls for a green note Tuesday. The company, rated a notch higher than its renewable peer Azure Power Solar Energy Pvt., plans to issue notes primarily to repay its debt on two projects, Fitch Ratings said in a note

• Meanwhile, rupee bond issuance is off to a slow start this week. Local firms have sold 11.4 billion rupees of notes as of Wednesday and plan to sell as much as 27.25 billion in the remaining week. If they did, that would still be less than half of the 80.2 billion worth of notes sold last week

Secondary Market — Lockdown Fallout

• “India’s second Covid wave could knock off as much as 2.8 percentage points from GDP growth in fiscal 2022, derailing what has been a promising recovery in the economy, profits, and credit metrics in the year to date,” S&P Global Ratings analysts including Eunice Tan and Shaun Roache wrote in a note Wednesday
• Still, S&P Global Ratings expects the credit profile of Indian companies to likely be resilient to the second wave of infections as most of them have improved liquidity and better access to funding than during the first wave
• Global credit research firm CreditSights changed its recommendation last week on Indian Oil Corp., Ltd. and Shriram Transport Finance Co. to underperform, citing the headwinds that the firms will face due to lockdowns
• CreditSights also changed its view on Delhi International Airport Ltd. to negative from neutral as the resurgence in Covid cases will likely suppress passenger traffic

Credit Ratings — Future Retail

• Fitch Ratings downgraded Indian supermarket-operator Future Retail Ltd.’s long-term issuer default rating to restricted default or RD from C last week, following the company’s announcement on the restructuring of the bulk of its onshore debt. Fitch views the plan as a distressed debt exchange
• The restructuring provides relief on debt servicing requirements until Sept. 30, according to Fitch. However, the resulting debt structure and maturity profile remain “unsustainable”
• The resurgence of the coronavirus in India and Future Retail’s “poor access to credit will make it difficult for the company to meet the interest payments on debt that was not part of the restructuring, particularly the U.S.-dollar notes,” Fitch said
• Future Retail as a part of the Future Group has been caught in a legal battle with partner Amazon.com Inc. The tussle has led to delays in Future Group’s $3.3 billion asset sale to Reliance Industries and kept bond investors on edge

Bloomberg

Distressed Debt — Reliance Communications

• The Delhi High Court is set to hear a plea against marking Anil Ambani’s company accounts as fraudulent Thursday. Anil, the younger brother of Asia’s richest man Mukesh Ambani, has seen his personal fortune dwindle in recent years, losing his billionaire status. His Reliance Communications unit filed for bankruptcy in 2019
• The Delhi High Court is also scheduled to examine status of revenue department’s probe into alleged over-invoicing by power companies Tuesday. A petition filed by the non-profit Centre for Public Interest Litigation alleges that companies, including from conglomerates such as Adani and Essar, gained by inflating import bills
• Best and Worst Performing Corporate Dollar Bonds Year-to-Date

–With assistance from Suvashree Ghosh and Divya Patil.