Debt: Debt Investors Drop Reliance Capital Bonds Over Repayment Doubts

Mumbai: Bond investors are dumping Anil Ambani-controlled bonds at steep discounts, questionable over future repayments of proceeds from the sale of Reliance Nippon Life Asset Management, the company’s profitable asset management business.

In recent weeks, those corporate bonds have changed hands, with secondary market yields rising 96.8%, brokers familiar with the matter told ET. Bond yields rise when prices fall. This indicates that the credit crunch among non-bank financial corporations continues to worsen. “Some funds which have depreciated according to valuations may have decided to sell in order to be able to realize a certain value,” said a broker, who however put his hopes on the measures announced Friday by the Minister of Finance Nirmala Sitharaman. Mutual funds are supposed to cut their losses based on existing valuations.

The situation is really bad for credit, according to another executive. We must see if such measures durably alleviate the fears of investors, said the executive. Three RCap bond secondary market transactions took place with yields between 55 and 97 percent. The transaction size ranged from Rs 75 crore to Rs 80 crore each. These debt securities have maturities in 2021, 2022 and 2023.

RCap did not respond to ET’s specific request on this matter.

The company announced in May its intention to sell its stake in Reliance Nippon Life Asset Management.

“The entire product of approx. Rs 6,000 crore will be used to reduce Reliance Capital’s outstanding debt by 33%, ”RCap said in a stock market notice on May 23. One or two buyers of troubled assets would have bet on RCap bonds expecting a future recovery of the group, which is grappling with a debt crisis. The rating company CARE has classified RCap’s credit facilities worth Rs 21,000 triple-B crore (BBB), which is below investment grade, as garbage. Rating oversight has been revised with negative implications as the plan to sell the stake in Reliance Nippon and use the proceeds to pay off the debt guaranteed by RCap was not reflected in an earlier plan submitted by the company, CARE said in a July 6 report.

CARE will also “monitor the progress of the sale of the group’s assets / investments” in accordance with the currently revised timetables indicated by RCap to reduce its debt levels.

RCap’s ratings have taken into account recent developments, in particular the failures of its subsidiaries Reliance Home Finance Ltd. and Reliance Commercial Finance. This, according to CARE, should “further reduce the group’s financial flexibility” and decrease its ability to raise funds in the markets.

Rising yields on corporate bonds in the secondary market began to haunt market participants.

Carol M. Barragan