Yankee Bonds: Triumph Of Pessimism

As usual, therefore, there are two sides to the coin. On the one hand, foreign leaders do not expect the credit rating to deteriorate sharply over the next 50 years (or atleast over the next 30 years since the last issue carries a put option at the end of 30 years). Else, they would not venture to lend on such long maturity. On the other hand, one of the most financially savvy corporates in India does not expect the rating to improve significantly over the next 50 years. Else, it would not commit itself to such high cost borrowing over such a long period. In other words, in its view, India is expected to spend the next 50 years in purgatory with perhaps no risk of prediction but no prospect of immediate deliverance either. Such a view underscores a very gloomy picture of the future of the Indian reform process and suggests that the dream of tigerisation has already turned sour.

 

Several counter arguments have been put forward against this gloomy prognosis. Justifying such long maturity bonds in a recent interview with The Economic Times, a senior executive of Merrill Lynch, which managed the Reliance Yankee bond, is quoted as saying that: