💼 Brief Take: India’s Musical Chairs on Steroids
Shapoorji Pallonji Group has taken the high-yield game to a new level as the music gets faster with each round.
Shapoorji Pallonji Group’s Porteast Investment has seen the cost of its private credit financing rise around 2 percentage points to 21.75% after a contractual step-up linked to payment milestones was triggered, The Economic Times reported.
The repricing applies to roughly INR 28,500 crore (USD 3.3 billion) of debt backed by 9.2% of Tata Sons’ stake, according to the Indian news agency.
Eveline’s Take
I wrote last year that Asia’s high-yield market is essentially a game of musical chairs where lenders pass a credit to each other and hope that the music doesn’t stop prematurely. India’s Shapoorji Pallonji Group has taken the game to a new level as the music gets faster with each round.
The step-up in its private credit pricing was triggered as Goswami Infratech, a borrower linked to the structure, did not complete a refinancing by end-December, The Economic Times reported. The group separately raised around INR 1,600 crore of bridge debt at the same pricing in December.
In a nutshell, one of the group companies missed a refinancing deadline, so both existing and fresh debt ended up being repriced to higher rates. Nevertheless, Porteast’s pricing would be reset to lower levels if the Goswami debt is refinanced by March, according to The Economic Times.
The group would have to get a refinancing deal over the line by March as it’s unlikely to be able to withstand the steep borrowing cost for a prolonged period. This is not a surefire success, as Shapoorji Pallonji’s ability to monetize its Tata Sons stake – and the timing – may affect its credit standing.
India can also be an uncertain jurisdiction for lenders, as shown by the court episode surrounding JSW Steel’s acquisition of Bhushan Power & Steel under India’s Insolvency and Bankruptcy Code (IBC).
Is there a way for lenders to protect themselves against the risks in Asian markets?
Singapore’s DBS Group Holdings is weighing a foray into the market for significant risk transfers (SRTs), Bloomberg reported earlier this month.
Banks use SRTs as a way to insure loans against a default, allowing them to boost their solvency ratios and reduce their reliance on options like issuing new equity or cutting dividends, according to Bloomberg.
This is a topic that’s piqued the interest of friends in the industry, but the devil is in the pricing and private credit lenders may also have different considerations from the banks.
Another question is whether the rising complexity of protecting a transaction is good for the industry in the long run.