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Commentary

Defaults Galore Worldwide, Tide Turns, Sea Rough for India

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Moody’s sees China Defaults as $21 Billion Matures (Bloomberg)

Local-government financing vehicles need to repay a record amount of debt this year, prompting Moody’s Investors Service to warn Premier Li Keqiang may set an example by allowing China’s first onshore bond default.

Some 127 billion yuan ($21 billion) of so-called LGFV notes expire in the second half, according to Everbright Securities Co., the most in its data going back to 2000 and more than double the 62.7 billion yuan that matured in the first six months. The yield premium over top-rated notes for one-year AA debt, the most common rating for LGFVs, widened to 67 basis points yesterday, the highest level since Jan. 16, Chinabond data show. The comparable gap in India is 47.

Crisil might downgrade Indian companies (Economic Times)

The stage is set for numerous rating downgrades of companies where more than Rs 1.1 lakh crore of loans are due for restructuring this fiscal, says Crisil. This financial strain could worsen the banking sector’s plight by pushing up bad loans to 4% of total assets, from 3.3%.

The tide turns for Private Equity in India (WSJ)

“In dollar terms, almost every investor is down 30% to 40%” since 2008, said Nikhil Raghavan, principal at private-equity firm Bain Capital LLC in Mumbai..

Consider the case of General Atlantic LLC, a private-equity firm. It invested $68 million in Mumbai software firm Hexaware Technologies Ltd. 532129.BY +1.06% in 2006 and has yet to sell out, according to Venture Intelligence, an Indian research firm.

Hexaware’s shares on the Bombay Stock Exchange have risen by around 41.5% since General Atlantic’s investment was announced in March 2006, but the rupee has fallen by roughly 34% since that time.

[Deepak] This bodes worse for venture capital companies who raised funds at 1$=45INR. The implicit return in rupees they have to make, just to break even, is 30% absolute.

The Balance of Payments in Emerging Markets (Barnejek)

Therefore, stop trying to guess whether the market misinterprets Ben Bernanke in one or another way because – as the last few weeks have shown – this will stop you out of positions unless you are the luckiest trader alive (in which case sit back, relax, you’re all set). But go back to the basics. Have a look at the balance of payments and this will help you get above the monkeys who trade Bloomberg headlines and are proud when they’ve guessed whether it was a risk on or a risk off day.

[Deepak] Oh, he hasn’t mentioned India. But our BoP would make us the worst of all the examples he quotes.

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