Rising defaults have led India to tighten controls on corporate bond sales, leading to a drop in the issue as a result of a long-sought market expansion target.
Proposals for rupee notes fell to 43.8 billion rupees ($ 584 million) this month, the slowest start to fiscal year 2008. This is due in part to rules that took effect on April 1st, strengthening the role of trustees for secured bonds secured by assets. Such proposals account for about 60% of India’s total emissions over the last 10 years.
The companies have overdue at least 52 billion rupees in domestic bonds so far this year, the most in a similar period. This comes as a failure as Covid-19 cases have been on the rise recently. This also reverses last year’s trend, when an unprecedented stimulus helped the pace of non-recovery to slow from all-time record in 2019
What do the new rules do?
- From this month, bondholders should assess and ensure that the bonds for securing the assets at all times are sufficient to pay the interest and the amount of the principal.
- They must conduct inspections and confirm that the issuer has the necessary authorizations from lenders in case the company creates additional fees on the asset.
- Trustees must also provide “certificates of due diligence” to the issuer at the time of submitting a draft tender agreement and before the notes are listed.
- Some bondholders see the slowdown in the primary market as temporary and expect the issue to intensify when companies comply with the new regulations.
- The issuance of unsecured bonds not covered by the rules may continue. Bankers say the offering of such banknotes by state-owned companies, which are willing to sell them, must continue quickly.
- Government REC Ltd. is looking for offers for 40 billion rupees of unsecured banknotes maturing in 2024 on Monday.
– With the assistance of Suyash Singhal
(Updates the number of bond sales in the second paragraph.)