Crunch for firms as debts come due
Anil Ambani's Reliance Communications, has a $925 million convertible bond maturing in March at a conversion price of Rs 654 — more than nine times its current stock price.business Updated: Dec 15, 2011 22:45 IST
Anil Ambani's Reliance Communications, has a $925 million convertible bond maturing in March at a conversion price of Rs 654 — more than nine times its current stock price.
With India's growth buckling and the rupee at an all-time low, other companies, too, are expected to struggle to meet debt obligations soon.
Seeking to finance acquisitions and their aggressive expansion, Indian companies raised funds through foreign currency convertible bonds (FCCBs) and bank loans before the financial crisis struck in 2008. Many of those debts need to be repaid next year, and the timing could hardly look any worse.The rupee has nosedived and is Asia's worst performing currency, and the stock market has dropped by more than a fifth, making it even tougher for debt-laden companies.
"It's a tricky situation for Indian companies. If any default it will have an horrendous domino effect in the country," said Nathalia Barazal, a Geneva-based portfolio manager for convertibles at Lombard Odier Darier, who owns $34 million worth of Jaiprakash Associates' $354.5 million convertible bonds that mature in September next year. "Lots of firms rushed to convertibles markets thinking it's a cheaper funding option."
More than two dozen companies on the BSE-500 index face FCCB redemption worth $6 billion by the end of the next fiscal year in March 2013, according to research by Indian brokerage Edelweiss.
The convertible bonds are too expensive at current levels to be converted into stocks, and the weaker rupee will leave issuers with a heavy redemption burden. "Given the current state of markets, FCCB conversion into equity shares won't happen, and even refinancing would be difficult," said Deepak Chokhani, India equity capital market director for Royal Bank of Scotland.
Sixty% of outstanding FCCBs were raised at an exchange rate of below Rs 42 to the dollar, Edelweiss said.
Suzlon Energy has about $389 million worth of convertible bonds maturing by October, of which $247 million worth of bonds mature in June.
Zenith Infotech said in October it defaulted on its $33 million FCCBs which were due in September, and was in talks with bondholders to extend the repayment timetable.
Moser Baer India has two convertibles worth $43 million and $45.5 million maturing in June.