Bond traders in China are rethinking counterparty risks as shock waves from a government takeover of a bank ripple through the country’s financial markets, Bloomberg News reported. It’s now getting harder for corporate bonds to be accepted as collateral for repo financing as lenders increasingly demand top quality bonds such as Chinese sovereign bills and policy bank notes as pledges. Traders are having second thoughts on taking even AAA rated short-term bank debt as security in the wake of last month’s seizure of Baoshang Bank Co.
Just as India’s banks emerge from under a pile of bad loans to large energy, steel and other industrial companies, they are facing a new reckoning from the accelerating crisis in the country’s shadow banking sector, Bloomberg News reported. A year after a series of defaults by Infrastructure Leasing & Financial Services Ltd. forced the government to intervene and exposed weaknesses in the sector, the problems of India’s non-bank financial companies are entering a new phase. Other weaker lenders such as Dewan Housing Finance Corp. and Anil Ambani’s Reliance Capital Ltd.
India’s market regulator on Thursday ordered enhanced disclosure norms for credit rating agencies in an effort to increase transparency as the country reels under a slew of rating downgrades and defaults that have roiled debt and equity markets, Reuters reported. The Securities and Exchange Board of India (SEBI) directed ratings agencies to formulate a uniform benchmark for the “probability of default” for each rating category and disclose that on their website for the ratings of long-term and short-term instruments.
They have billions of dollars in funding, backing from China’s biggest tech companies and the world’s largest electric vehicle market at their doorstep. But Chinese EV start-ups face a struggle to survive in the face of intensifying competition and subsidy cuts, the Financial Times reported. Although analysts are reluctant to name companies that could disappear, the two dozen Chinese EV start-ups such as Nio and Xpeng, which have raised more than $10bn in recent years, are expected to be cut down to a handful.
New Reserve Bank of India norms on debt restructuring are likely to hit the profitability of already distressed non-banking financial companies (NBFCs), Livemint reported. The guidelines mandate lenders to keep additional provisioning of 20% if a resolution plan is not implemented within 210 days from the date of default and 35% if not implemented within 365 days of default. This move to include NBFCs along with banks in the circular comes at a time when these firms are reworking their growth strategy in the wake of a liquidity crisis.
Auto sales in China declined for an 11th straight month in May, with the slump in demand showing no sign of easing and the country’s automotive industry bracing for losses tied to new emissions standards, The Wall Street Journal reported. Sales for the latest month fell 16% from a year earlier, to 1.91 million vehicles. New vehicle emission standards are set take effect July 1, and dealers are scrambling to sell their older vehicles before they are disallowed at the end of June, often by offering steep discounts.
In China, debt takes many shapes – on the books, off the books, or buried deep within the financial system. Now, debt can even be considered equity, Reuters reported. In a bid to boost the economy, China this week announced it would allow local governments to borrow more to fund infrastructure investment. As part of this push, it will let municipalities use the proceeds of special-purpose bonds as equity in railroad, highway and other projects. 2 Previously, local governments weren't able to use such debt as seed capital. Using debt proceeds to fund equity is a dangerous proposition.
Embattled Indian tycoon Anil Ambani pledged to reduce debt at his infrastructure-to-finance conglomerate to a “bare” minimum, seeking to bolster investor confidence in an empire that’s grappling with high leverage and delayed asset sales, Bloomberg News reported. The Reliance Anil Dhirubhai Ambani Group has repaid 350 billion rupees ($5 billion) in the past 14 months, an amount entirely raised through disposal of assets, Ambani, 60, told reporters in a rare conference call Tuesday without elaborating.
The fate of Jet Airways is hanging in the balance and much rests on how today pans out. On one hand, reports suggest that the grounded carrier's lenders are expected to respond to the bailout conditions set by its strategic partner Etihad and the Hinduja Group this week, perhaps as early as Monday, and on the other hand Jet Airways is at risk of landing at bankruptcy court, Business Today reported. Two of the airline's operational creditors, Shaman Wheels and Gaggar Enterprises, have approached the National Company Law Tribunal (NCLT) for the recovery of their dues.
Indian film and entertainment group Eros International has taken steps to resolve delays in loan payments, Chief Executive Kishore Lulla said, as he also dismissed a short seller’s allegations of accounting irregularities at the group, Reuters reported. The company’s New York-listed shares plunged more than 55% last week, and those of its Indian subsidiary Eros International Media Ltd sunk more than 30%, after an Indian rating agency categorized debt of Eros’s Indian subsidiary at “default” levels due to delays in loan payments.