Bharti Bonds Turn Junk, Spreads between Buy-Sell on Indian Securities Widen to 400 Points

Goldman Sachs Group Inc. recommended India’s Reliance Industries Ltd. (RIL) and Bharti Airtel Ltd. (BHARTI) among its 22 most-favored bonds in Asia, saying it’s time to take advantage of the widest spreads in almost a year.

The investment bank picked Reliance’s 5.4 percent February 2022 notes as one of 12 investment-grade buys while Bharti’s 5.125 percent March 2023 debentures were added to its top 10junk bonds, analysts led by Hong Kong-based Kenneth Ho said in an Aug. 26 report. The lists include 15 Chinese companies.

Indian dollar-denominated bond yields surged to a 19-month high of 6.52 percent on Aug. 22 as the rupee plunged to a record low on Federal Reserve plans to pare stimulus. The spread investors demand to hold Indian securities has widened by 103 basis points to 394 since May 20, JPMorgan Chase & Co. indexes show. Only Indonesian debt premium has increased more in Asia.

The Reserve Bank of India engineered a cash crunch in Asia’s third-largest economy last month in an attempt to shore up the rupee. The currency’s 20 percent slump this year threatens to increase import costs and fuel inflation in a nation that buys almost 80 percent of the oil it uses abroad.

Reliance loses in Bond Market

Reliance Industries, based in Mumbai, operates the world’s biggest oil-refinery complex.

Its $1.5 billion of 5.4 percent notes due 2022 have lost 3.7 percent this quarter through 27 August. Yields climbed 69 basis points, or 0.69 percentage point, to 5.81 percent over the same period.

Bharti Turns Junk

Bharti Airtel, India’s biggest mobile-phone operator with an almost one-third market share, raised $1.5 billion in March selling its first dollar bonds since 2004. The 2023 securities have lost 6.8 percent this quarter, as yields surged 114 basis points to 7.51 percent.

An index tracking 65 Indian dollar-denominated corporate bonds fell 2.4 percent over the same period, Bank of America Merrill Lynch data show. Ten-year Treasury notes dropped 1.8 percent as yields rose to 2.71 percent from 2.49 percent.

Goldman Sachs removed bonds due in 2016 sold by Rural Electrification Corp., Canara Bank and Syndicate Bank, and those due in 2017 sold by Axis Bank Ltd., from its most-favored list in this week’s report because of their shorter tenors.

Morgan Stanley this month reduced Indian bank debt to underweight, saying faltering economic growth will increase delinquent loans. It predicts impaired loans may reach 12 percent of the total by March 2015. India hasn’t had a ratio of more than 10 percent since 2002, World Bank data show.

Credit Risk

India’s creditworthiness weakened this quarter. The cost to insure the notes of State Bank of India, a proxy for the sovereign, against non-payment for five years climbed 96 basis points since June 30 to 371 basis points in New York on 27 August, CMA data show. The yield on the 7.16 percent government bonds due May 2023 rose 13 basis points to 8.99 percent as of 10:46 a.m. in Mumbai. It has risen by 154 basis points this quarter.