King of Indian Bond Sales warns of the biggest crisis since Lehman


(More Bank) – Shashikant Rathi, who has dominated Axis Bank's local bond underwriting business for more than a decade, said the sector was facing its biggest challenge since the global financial crisis.

The shocking failures since last year of the fictional bank's IL & FS group and a new electronic auction platform have upset the $ 108 billion market where underwriters like Rathi help companies lift funds by selling debt securities. Corporate bond sales in rupees that tend to pay the highest fees dropped this quarter to the lowest of 2016.

"The market is in chaos," said Rathi, executive vice president and head of finance and markets at Axis Bank in Mumbai, 41. "I have not seen such a crisis since the Lehman bankruptcy in 2008."

The surprise rate cut by the central bank last month and anticipations of further easing as early as April did not bring down funding costs, as bond spreads dropped sharply. 10-year-old companies having reached the highest levels are nearing the highest levels since 2009. That could take until the Indian elections in May for the market to calm down and emissions to resume, says Rathi.

Difficulties have slowed India's willingness to strengthen the local corporate bond market. Rathi tries to overcome the problem by doing what he has always done, using long-standing relationships to organize more business.

India's corporate debt market remains mediocre compared to the $ 2.6 trillion in financing needs of the economy, and large issuers remain mostly limited to quasi-state companies. Decision makers are trying to change that. Starting in April, large companies will have to meet 25% of their annual financing requirements on the bond market. This rule will help increase the volume by 20 to 25 percent each year, said Rathi.

Overall, rupee bond sales have increased by more than 13% since the beginning of the year, but this is mainly due to issues by Crown corporations that generally do not pay fees. subscription. The transactions that bankers rely on to earn commissions on notes without AAA ratings have fallen about 49% this quarter compared to the last three months of 2018, according to data compiled by More Bank.

The introduction of an electronic auction platform, which allows investors to place purchase orders for any issuer without going through a broker, complicates things for the organizers. Last year, new rules forcing investors to make some of their offers on the electronic platform, publicly available, resulted in a fall in rupee bond sales.

Rathi said that arrangers still have a big role to play in the Indian primary market, which is not yet fully developed.

"Issuers still need organizers because we are the bankers who can give them a firm commitment, give advice on the right level of borrowing and help create markets," he said.

The collapse of the credit market threatens one of the fastest growing economies in the world, and affects everyone from homeowners from electronics stores to homebuyers. This is because these business owners and these consumers are dependent on shadow banks and these lenders themselves are now struggling to get financing.

According to a study by Nomura Holdings Inc., these non-bank financing companies have provided 30% of all new loans in the economy in the past three years.

Spreads on the rise

Businesses also spit more for money. The 10-year high-rated corporate bond spreads compared to similar government bonds climbed to about 121 basis points, which is close to the levels reached in 2009.

Despite the weakness of the market, Rathi still makes big contracts. He helped raise Rs. 70 billion ($ 1 billion) as the main underwriter this month for Reliance Industries Ltd., the country's largest issuer.

Rathi is from the Marwari community of the western state of Rajasthan, a community that counts among its own notable, including billionaires Kumar Mangalam Birla and Lakshmi Mittal. Chartered accountant, Rathi is a fan of the investment style of Howard Marks, co-founder of Oaktree Capital Group.

"I am a conservative risk taker," said Rathi. "I will not take unnecessary risks and I tend to change my strategies according to the needs of the hour."

Rathi's next goal is to place his bank among the top three organizers of issuers of Indian companies selling bonds in foreign currencies – which he hopes to achieve with his database of more than a thousand Indian companies. Axis Bank is already among the leaders in the implementation of so-called Masala bonds, which are rupees sold to foreign investors.

"In fact, in Singapore, we are known as the Masala Bank," Rathi said.

(Updates overall sales in the seventh paragraph.)

To contact the reporters on this story: Divya Patil in Mumbai at dpatil7@More Subhadip Sircar in Mumbai at ssircar3@More

To contact the writers in charge of this story: Andrew Monahan at amonahan@More, Tan Hwee Ann at hatan@More, Ken McCallum

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