Midnight News Update – Nov 22nd 2017
Reliance Industries has managed to raise $800 million at the lowest ever coupon rate for an Indian company at 3.66%. This was largely enabled by the Moody’s upgrade last week which has reduced India’s borrowing cost globally. The global bond costs are determined by the spread over LIBOR and lower risk perception results in a lower spread over LIBOR. The entire money will be used to repay its $800 million borrowing which has been taken at 5.875%. This will drastically reduce the cost of borrowing for Reliance. Most of the borrowings in the last 2 years pertained to Reliance Jio.
The rupee appreciated sharply by 22 paisa on Tuesday to close at a healthy level of 64.89/$. Post the Moody’s upgrade, Indian exporters have been aggressively trying to convert their dollar holdings into INR and that is leading to heavy selling in the rupee leading to a strengthening rupee. The INR also benefited from the fact that the NSE and BSE indices have been on an uptrend for the last 4 sessions. Most banks and currency hedgers expected a surge of dollar inflows into India in the aftermath of this upgrade and have been selling dollars aggressively to counter the weakness in the dollar.
Air India has roped in SBI Caps to assist in the divestment process, which is likely to happen in the coming calendar year. Since the government does not see any point in continuing to fund this airline it proposes to undertake a strategic divestment of Air India. Five groups have already been set up internally headed by senior officials to identify the next steps in the divestment process. Air India has a current debt level of over Rs.50,000 crore and it has some marquee properties across India which is heavily in demand. The big challenge is to keep buyers interested in the whole and not just the parts.
The RBI has already set a deadline of March 31st 2018 to complete provisioning against the second list of stressed assets. These 30 stressed accounts had been identified in August and the deadline has been set at December 31st to either restructure these accounts or to declare bankruptcy. The NPAs of the banking industry have shot up from Rs.3.4 trillion in 2015 to Rs.8.4 trillion in 2017, largely because the RBI insisted on stringent provisioning. From the market point of view rapid provisioning will be positive as it will result in a rapid clean-up which is what the market is actually looking at.
For a very long time, high level of household debt has been identified as the Damocles Sword for the Chinese economy. Now, the Chinese government is pursuing the problem on a priority basis. The big challenge for China is regulating the shadow banking industry in China, which essentially refers to the informal banking channels that are not properly regulated. By 2022, the total Chinese debt is expected to be 3 times the size of the Chinese economy, which is surely a huge problem. Large part of the rise in leverage in the last few years happened because the government looked the other way. With the threat of a slowdown in the global economy, the Chinese government did not want to take a chance and hence allowed a debt binge. High yield products are also proliferating in China, which is another worry!
At a time when Detroit has been at the receiving end of the slowdown in the US automobile industry, India’s M&M now holds the distinction of becoming the first company to set up an automotive manufacturing plant in Detroit in the last 25 years. M&M will use this plant to assemble cross-terrain vehicles for the US market. A total of $320 million has been committed to this plant. Eventually, M&M plans to brand all on-road vehicles under the Ssangyong brand while all hybrid and electric cars will be sold under the Pininfarina brand. Both these brands are currently owned by M&M.
