Rising defaults trigger rules that slide bond sales to 2008 low

Rising defaults prompted India to tighten oversight of corporate bond sales, which drove issuance down, which struck a long-sought after goal of market expansion.

Offers of rupee banknotes fell to Rs 4.380 crore ($ 584 million) this month, the slowest start of a fiscal year since 2008. This is in part due to the rules that went into effect on April 1. strengthening the role of trustees for secured asset backed bonds. These offers have accounted for around 60 percent of India’s total domestic emissions over the past 10 years.


Companies have defaulted on at least Rs 5,200 crore in domestic bonds so far this year, the highest number on record for a similar period. This comes as a setback as cases of Covid-19 have recently increased. It also reverses the trend of last year, when unprecedented stimulus helped the pace of default to slow from a record high in 2019.

What the new rules do

  • Starting this month, bond trustees must assess and ensure that the bond-backed assets are adequate at all times to pay interest and principal.
  • They must carry out checks and validate that the issuer has the necessary authorizations from the lenders in case the company creates additional charges on the asset.
  • The Trustees are also required to provide “Certificates of Due Diligence” to the Issuer at the time of filing a proposed Offer Agreement and prior to the listing of the Notes.

And after

  • Some bond arrangers view the primary market downturn as temporary and expect issuance to resume as companies comply with the new regulations.
  • The issuance of unsecured bonds, which are not covered by the rules, can continue. Bankers say offers of such tickets by state-owned companies that tend to sell them are expected to continue at a brisk pace.
  • The Crown corporation REC Ltd. is soliciting offers for up to Rs 4,000 crore of unsecured notes maturing in 2024 on Monday.

(Except for the title, this story was not edited by NDTV staff and is posted from a syndicated feed.)

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