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Business News/ Market / Stock-market-news/  Two sub-investment grade dollar bond issues fail to close
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Two sub-investment grade dollar bond issues fail to close

An overseas bond sale by Reliance Communications was deferred while another bond offering by Lodha Developers also failed to close

The central bank has clamped down on companies raising funds via overseas subsidiaries and then bringing them back to India without complying with the RBI’s external commercial borrowing restrictions. Photo: BloombergPremium
The central bank has clamped down on companies raising funds via overseas subsidiaries and then bringing them back to India without complying with the RBI’s external commercial borrowing restrictions. Photo: Bloomberg

Mumbai: Proposed dollar bond issues by two sub-investment grade Indian firms have failed to close because of a dip in overseas investor interest in such so-called, high-yield bond issues, three people familiar with the development said.

An overseas bond sale by Reliance Communications Ltd (RCom), launched on Monday, was deferred, said the persons cited above.

According to Bloomberg, RCom had been looking to raise $255 million through the issue.

Separately, a bond offering by Lodha Developers Ltd launched on Tuesday failed to close and was rolled over, said one of the three persons cited above and a company official.

RCom said it could only comment for this story on Wednesday.

“There has been upward pressure on pricing of India-related bonds in the past few days," a Lodha Developers spokesperson said. “We have had blue-chip investor demand for the proposed bond offering and will make a decision on going ahead with the offering subject to pricing being in line with our credit rating of ‘BA3’ by Moodys."

Both companies were looking to tap the overseas bond market for the first time in an attempt to cash in on a surge in demand for Indian corporate bonds since the start of the year.

While Deutsche Bank and Standard Chartered are the bankers to the RCom issue, JPMorgan and Bank of America-Merrill Lynch are bankers to the Lodha Issue.

Indian companies have raised more than $18 billion since January through foreign currency bond sales, according to Bloomberg data.

This includes 14 sub-investment grade, or junk-rated, companies that raised $5.25 billion, up from six companies raising $2.4 billion in 2013, according to Bloomberg data.

The sentiment appears to have turned against high-yield bond issues in recent days.

“Bond prices of Indian companies have fallen in the last week and that is because of a variety of reasons. These two issues which were supposed to close on Tuesday have faced the impact," said the first person cited above.

Data from Bloomberg show the price of five-year bonds sold by hydro and wind power firm Greenko Group Plc. in July has fallen from 95.85 cents on the dollar on 20 November to 90.77 cents on the dollar on Tuesday.

Vedanta Resources Plc.’s 10-year bonds sold in May 2013 have fallen to 98.77 from a high of 107 in July and down from their recent peak of 103.75 on 23 September.

JSW Ltd’s five-and-a-half year bonds sold on 5 November were down to 98.80 on Tuesday from a peak of 99.26 on 7 November.

The first person cited above said Greenko bonds had fallen because of concerns over a recent notification by the Reserve Bank of India (RBI). Vedanta bonds had fallen because of lower oil prices and JSW’s because of “weak sentiment around the company generally", the person said.

The central bank has clamped down on companies raising funds via overseas subsidiaries and then bringing them back to India without complying with the RBI’s external commercial borrowing restrictions.

In a notification on 25 November, the central bank had said that companies and banks that do not comply with rules “shall render themselves liable for penal action".

While the RCom issue has been deferred indefinitely, bankers to the Lodha offering are still hopeful the firm could close the issue on Wednesday, the second person quoted above said.

“RCom was supposed to raise $250 million by selling bonds at a fixed rate of 6%, which is quite high and even then demand from investors was not there. I think it will be delayed for a couple of weeks," added the person.

Lodha had been planning to raise funds through different avenues including bond sales.

In July, Bloomberg reported that Lodha, which is building the world’s largest residential tower in Mumbai, may be planning a $1 billion initial public offer, which could value the firm at $10 billion.

There have been no developments on the issue since.

Fitch Ratings has assigned an expected rating of “B+(EXP)". to Lodha’s bond issue. The bonds were to be issued by Lodha Developers International (Mauritius) Ltd (Lodha Mauritius) and guaranteed by Lodha, said Fitch Ratings.

“Lodha’s rating reflects its high concentration in a few projects despite the considerable scale of its operations. Its four largest projects will account for nearly 80% of contracted sales in the financial year ending 31 March 2015 (FY15), reducing to around 60% in FY19," the rating agency said.

Bloomberg and Pooja Sarkar contributed to this story.

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Published: 03 Dec 2014, 12:41 AM IST
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