Indian convertible bonds are set for the first monthly loss since May after slowing economic growth reduced cash flow to the lowest in five years, pushing more companies into default.
Equity-linked notes fell 1.2 per cent since January 31, a Barclays Plc index tracking nine most-active securities show. Indonesian securities returned 5.2 per cent, the most in Asia outside Japan, while US convertibles dropped 0.3 per cent. Jaiprakash Associates Ltd's bonds due September 2017 led losses with a 12 per cent slump as the benchmark S&P BSE Sensex index, slid 4.5 per cent from a two-year high on January 29.
Companies on the 30-member Sensex generated the least cash flow since 2007 last year, as they struggled to cope with the highest interest rates among major Asian economies. The reversal comes as Bartronics India and Geodesic followed Suzlon Energy into default, and a JPMorgan Chase & Co survey showed global investors cut holdings of emerging-market assets.
"The equity market has been a bit weak and the rally since June means valuations have become a bit stretched," Antoine Bourgault, London-based head of research at ISM Capital LLP said in a February 21 telephone interview. "Cash flow has been pressured by high interest rates. The appetite for Indian credits has reduced significantly for some names because investors are uncomfortable with the leverage level."
Jaiprakash, Tata
Jaiprakash's 5.75 per cent bonds lost 12 per cent since January 31, with yield surging 371 basis points, or 3.71 percentage points, to a five-month high of 5.71 per cent, data compiled by Bloomberg show. Tata Steel's 4.5 per cent notes due November 2014 lost 0.6 per cent, pushing yield to a two-month high of 3.92 per cent on February 22.
Cash flow generated by Sensex members fell 9.8 per cent to Rs 1,128 per share in the 12 months ended December 31, the least since 2007, according to data compiled by Bloomberg.
No Indian companies have sold equity-linked notes since Sintex Industries., which makes textiles and plastic products, raised $140 million in November. Asian companies outside Japan sold $1.5 billion of such securities in January, the busiest start to a year since 2008, Bank of America Corp said in a February 5 report. "Investors want to be assured India is a long-term story, and not a short- or medium-term story," Taina Erajuuri, a fund manager at FIM Asset Management Ltd. in Helsinki, who invests in emerging markets including India, said in a February 21 telephone interview. "Till the time that happens, the convertibles will be bought at higher yields."
Defaults, Suzlon
Twelve companies missed payments on $783 million of notes in the past 15 months, led by Suzlon's $209 million default in October that was the largest by an Indian issuer, according to data compiled by Bloomberg. Bartronics, a Hyderabad-based technology company, defaulted on $50 million of notes when they matured on February 4, while Mumbai-based software developer Geodesic failed to honor a $113.5 million obligation on its convertible bonds on January 18, the data show.
Bartronics in January sought permission from the Reserve Bank of India for a six months extension to negotiate with bondholders, Prashant Deshpande, a spokesman for the company said in an e-mailed statement. Geodesic's Managing Director Kiran Kulkarni and Chief Financial Officer Prashant Mulekar were in meetings and didn't return two phone calls seeking comment.
