Wednesday, 17th March 2021

Kesoram Industries of the Birla group that was trying to raise Rs.1,600 crore via junk bonds with yields as high as 21%, managed to find buyers for its bonds. In fact, Goldman Sachs, Cerberus Capital and Edelweiss bought into the junk-rated rupee bond sale by Kesoram Industries, lapping up the entire Rs.1,600 crore issue. This is despite the fact that Kesoram had defaulted on its debt last year. This is indicative of the fact that in a world that is starved for yields, big investors are willing to even risk going well down the rating curve in search of yields. These bonds will carry the additional security of shares pledged with investors.

With SEBI firm on the proposed changes to the AT-1 bond rules, many large investors are planning to redeem their substantial debt fund holdings. Their apprehension is that if the 100-year maturity rule comes in from 01 April, then these debt fund holding AT-1 bonds and Tier-2 bonds will have to take deep provisions leading to erosion in NAV. While fund managers are urging investors to wait for greater clarity on the issue, it does not look like many of the HNIs really want to take chances with their money, especially after the sudden surprise thrown by Franklin Templeton last  year. It is estimated that mutual funds could have total exposure of Rs.70,000 crore equally split between AT-1 bonds and Tier-2 bonds and that is a lot of risk on the books. Credit risk funds and medium duration funds are heavily invested in these bonds.

Hyderabad based Gland Pharma, which recently came out with its IPO, has entered into an agreement with the Russian Direct Investment Fund or RDIF to supply 252 million doses of Sputnik-V vaccine. Gland Pharma will be utilizing its manufacturing facilities for production of Sputnik-V vaccines for COVID-19. It is estimated to start production in Q3-2021 and delivery is likely to start from Q4-2021. Gland Pharma has expertise in manufacturing sterile injectables on a large scale and that should be a boost for the vaccine. Apart from Gland Pharma, Hetero Drugs and Reddy Labs are also working closely with RDIF for Sputnik-V.

Gujarat based Exxaro Tiles has filed its draft red herring prospectus or DRHP to raise Rs.150 crores through a public issue. The IPO will comprise of a fresh issue of up to 1.12 crore equity shares and an offer for sale of up to 22.38 lakh shares. The proceeds of the fresh issue will be used by Exxaro to prepay borrowings and to finance its working capital needs. Exxaro is engaged in the manufacture and marketing of vitrified tiles used for flooring solutions in the residential and commercial segments. Exxaro has a manufacturing capacity of 1.32 crore square metres per year. The company enjoyed EBITDA margins of 20% in FY20.

Adani Ports and SEZ will work with Sri Lanka based John Keells Holdings to develop a port terminal in Sri Lanka. Adani has received the LOI to build and operate the West Container Terminal of Colombo Port for a period of 35 years. The project is estimated to cost $750 million and marks the first major foray of Adani Ports outside India. Adani Ports SEZ already operates 12 ports in India and commands 30% share of the Indian port market. This is relevant because in recent times, Sri Lanka leaned heavily on China. The port terminal will have quay length of 1,400 meters and depth of 20 meters. Adani will hold 51% in the venture.

The next big agenda for steel producers is debt reduction. Indian primary steel producers are estimated to reduce debt by Rs.35,000 crore by March 2022. CRISIL estimates that steel producers will use higher operating profits for prepayment. Next year, steel companies could see a sharp improvement in credit metrics due to lower debt and partial deferral of capex. While the total debt of the steel manufacturers stands at a whopping Rs.215,000 crore, they are expected to repay Rs.25,000 crore in FY21 and Rs.10,000 crore in FY22. Higher infrastructure spending by government and recovery in residential realty could push steel demand up by 10-12% for FY22. HRC prices have also rallied to a multi-year high of Rs.56,000/ton. CRISIL expects cash accruals to surge 40% in FY21 and 10% in FY22, helping debt reduction in a big way.

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