IL&FS jumps by record in dim sum bond mkt on hope of shareholders' support

Creditors of India’s troubled Infrastructure Leasing & Financial Services Ltd. will be closely watching for signs of support from key shareholders at meetings that are coming up after bonds jumped on expectations of backing.

The Reserve Bank of India plans to meet the largest stakeholders of IL&FS group on Friday, according to people with knowledge of the discussions. The shadow lender is also scheduled to hold an annual general meeting on Saturday.

“The main catalyst that investors are looking for at upcoming meetings is whether IL&FS will get support from its shareholders including Life Insurance Corp.,” said Mihir Chandra, head analyst at fixed-income finance firm SC Lowy. “Unless IL&FS gets an equity injection from its larger shareholders, it’s difficult to see the group avoiding a restructuring.” The firm trades dim sum bonds sold by IL&FS unit IL&FS Transportation Networks Ltd.

The outcome of the key meetings may affect India’s financial markets as a whole, after defaults by the IL&FS group caused anxiety levels in equities to jump this month and made it harder for companies to close bond offerings. Small Industries Development Bank of India this week became the first lender to seek resolution of IL&FS group’s debt under the Insolvency and Bankruptcy Code, the nation’s first consolidated bankruptcy law that was passed in 2016.

IL&FS Transportation Networks’ dim sum bond rose about 1 point to 49.1 on Friday, after jumping 5.8 points on Thursday, the biggest gain since the securities were sold in January, according to Bloomberg-compiled data. Despite the surge, the notes are still down around 51 points since they were issued.

There have been indications of support for IL&FS group from key shareholders. Life Insurance Corp. of India, its biggest shareholder, will ensure IL&FS doesn’t collapse, its chairman said Tuesday, the same day that finance minister Arun Jaitley said that the government is closely monitoring IL&FS.

“If there’s equity support from Life Insurance Corp. and other IL&FS shareholders, the dim sum bonds will likely trade higher, but if not, we see little value in the unsecured debt,” said Chandra.