Just 1%? I believe a much bigger response is necessary, but then that's what it is for now. Load up on Gilt funds - that's my response. A lot more is going to come; this is very insufficient. Gilt watch: the 2018 g-sec is already trading at a yield of 6.76%. (It may not come down to 6.5%, but if it does, the gilt will see a price rise of nearly 2%)
- SIDBI and NHB to get short term funds - 7000 and 4000 cr. respectively. This is largely to try and lend more to small and medium businesses. (My opinion: Hot air. Not going to do much)
- FCCBs can now be bought back, through I-banks, even without using forex reserves (of a company). Companies can issue ECBs (essentially, non convertible loans) at a 15% discount on the book value of the current FCCB. [I honestly don't understand this point - shall have to find out what it means]
- FCCBs can also be bought back using rupees - but only at a 25% discount (whatever that means) and with a limit of $50 million drawn only from internal accruals (companies can't go get local debt to pay back FCCBs)
- Housing loans for under 20 lakh are now "priority sector". This helps with certain priority sector committments banks have to follow.
- Earlier, commerical real estate loans, if "restructured" classified as NPAs or something close. Now a relief has been given - they're not going to be called "non performing"l; they will be "standard". (Go on, builders, ask your bank to restructure!) This does not apply to your home loan because you are strictly small fry.
- Second restructures - meaning, I tried but I can't even pay back the lowered EMI or principal or interest, so help me again - also needn't become NPAs, they go into "standard" loans.
I still don't know some of the terms ("discount to nominal value of the FCCB") - if someone does, could you help?
This should perk up the markets - nowadays, anything helps. But it doesn't look good in the longer term - deeper, bigger cuts are needed.
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>Indian Corporates have FCCB borrowings of about 20 Billion Dollars coming due from mid 2009 onwards. This will need to be replaced with Debt from Indian Banks or ECBs for rollover.Indian FCCBs are quoting at steep discount to the issue price. I think RBI has opened a window for these (distressed?)companies to buy back at distressed prices from the investors.
Still the possibility of Corporate defaults on FCCBs cannot be ruled out in 2009.
Those who roll over will have huge interest payment liabilities to Indian Banks/ECB which will dent their EPS.
12.06.08 at 2:08 PM
>Hi Deepak
On the FCCB front … The RBI so far didnt allow u to buyback the bonds that u had issued. In the current credit squeeze some of these bonds will be quoting far below the face value of the bond. So like buying back share because the company believes that the share price is at a discount to the intrinsic value, RBI is now allowing companies to buyback their debt with following conditions
1) In case the company has forex reserves/ earning or can issue fresh FCCB then use the amount to buyback its FCCB at a minimum discount of 15%.
2) In case there is no forex reserve/earning for the company then the discount should be atleast 25% of the face value.
So far the RBI’s objective was to conserve forex in uncertain times, it is now moving to let companies buyback debt if it is available cheaply and reduce external borrowings.
Ninad
12.06.08 at 2:15 PM
>I remain cautiously bullish on India over medium-long term. Short term there would be volatile movements in markets till May/June 2009. Technically Nifty 1975 looks a Bear Bottom to me. Money like water will finds its way, if India recovers from temporary slowdown, new money is bound to come to equities! Being in Debt now would give ‘short term safety but long term pains’, whereas starting to invest in Equity may give ‘short term pains but long term gains’. Returns immediately after a bear market has been historically much higher than average returns in Equities. This leads me to believe that Equity allocation in 2009 spread over 6 months (Jan-June 2009) would most likely outperform all other asset class returns on 2-3+ year horizon.
http://betweenthelinesin.blogspot.com/
12.07.08 at 8:56 AM