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Bloomberg

Falling rupee now hurts some of the worst bonds in Asia: Indian credit

(Bloomberg) – A fall in the rupee worsens the fall in dollar banknotes of Indian companies which are now among the worst performing in Asia, as companies hedge less and stocks fell around 0.1% in April, worse from a gain of 0.4% for a larger Asian dollar bond gauge, according to the Bloomberg Barclays indices. All other Asian countries posted positive returns except China which lost around 0.4% after the fall of China Huarong Asset Management Co. The weaker rupee pushes up the cost of servicing the external debt. The currency has dipped about 2.4% against the dollar this month, making it the worst performance in Asia. About 5 in 10 Indian companies hedge their foreign loans in India, up from around 8 several years ago before the RBI relaxed the hedging rules, said Samir Lodha, managing director of QuantArt Market Solutions, a firm. consultancy based in Bombay. “The decline in the rupee this month may prompt more local businesses with foreign borrowing to consider at least low-cost hedging.” lowest borrowing costs ever in the dollar bond market. Only one Indian company settled a bill this month: a $ 585 million deal with ReNew Power. That leaves issuance at six-month low Local businesses also avoided foreign currency lending in April after borrowing $ 7.2 billion in the previous quarter. to stabilize, ”said Abhishek Goenka, founder of IFA Global, a Mumbai-based consulting firm. “Currency volatility induced by a pandemic prevents borrowers from assessing the cost of their external debt.” Companies may be looking more to the local credit market, although there have been new hurdles there. They sold 47.6 billion rupees of bonds this week and expect up to 80.5 billion rupees more. If all of those sales materialize, it would be higher than in the previous two weeks combined. However, offers fell to 139.9 billion rupees ($ 1.9 billion) this month, starting on slower fiscal year since 2014. This is in part due to rules that took effect on April 1, strengthening the role of trustees for covered asset-backed bonds Secondary market – Sovereign rating concerns The latest wave of coronavirus infections are also bad for India’s sovereign rating. The country has the lowest investment grade score with a negative outlook at Moody’s Investors Service and Fitch Ratings “We expect a repeat of the sudden crash in economic activity in 2020 in the coming months,” said Timothy Wee Lee Tan and Jason Lee, Bloomberg Intelligence analysts. “With a GDP growth outlook revised downward for FY22, India’s debt burden will be higher than the current IMF forecast, implying a high risk of ratings falling to the speculative level.” Any official downward revision in gross domestic product may lead to a preventive widening of the option – adjusted spread for Indian dollar loans, with an offshore sovereign rating downgrade likely to push premiums up to 90 basis points wider to trade closer to Brazil and South Africa, according to Bloomberg Intelligence Distressed Debt – ARC Rules Under Review Reserve Bank of India formed a six – member panel on Monday to review rules for asset rebuilding companies or ARC, which help India’s banking system cope with one of the world’s worst bad debt ratios among major economies ARCs have been in the spotlight in recent weeks: March. 18: India’s Ministry of Corporate Affairs is investigating allegations of financial irregularities in the asset reconstruction arm of Edelweiss Financial Services Ltd., according to people with direct knowledge of the case. Edelweiss said he had not received any information regarding an inspection by the ministry Mar. 14: India’s central bank rejected Yes Bank Ltd.’s proposal. to set up an ARC for the acquisition of bad debts in the event of a conflict of interest, Mint reported, citing people she did not identify. a protracted credit crunch in the country, plans to resolve 500 billion rupees ($ 6.6 billion) of its debt by the end of September, President Uday Kotak said last week. Kotak, who heads the board of IL & FS after the government took control of the shadow lender in 2018, expects to resolve around 62% of its Rs 1 trillion in debt. its debt is Future Group. Indian supermarket operator Future Retail Ltd. approved a debt resolution plan that allays some immediate concerns as a legal battle with its partner Amazon.com Inc. threatens to delay the sale of assets to Reliance Industries Ltd. For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business information. © 2021 Bloomberg LP