Nod for Goswami Infratech to redeem bonds later

Investing in lower credit-rated, high-yield bonds, even with a short tenor, carries significant risks. The potential high returns come with substantial risks, particularly related to credit quality, liquidity, and the absence of a sinking fund especially if it is zero coupon bond - Venkatakrishnan Srinivasan, Managing Partner, Rockfort Fincap LLP, tells Bizz Buzz

Mumbai: Investors have reposed faith on India’s biggest local currency high-yield bond as they agreed for delay in maturity payment otherwise due in May.More than a week has passed when Goswami Infratech, a holding company of Shapoorji Pallonji Group, had requested existing investors to permit an extension of maturity not later than September 30. The reason behind it was the delay in compliance in covenants as it was mentioned in the deed the company had reached with the debenture trustees at the time of raising of the bond.

The borrower was supposed to pay Rs1,400 crore on May 26 towardthe bonds. It was India’s largest ever low-grade local-currency corporate bond sold last year, sources familiar with the development said.

Talking to Bizz Buzz, Venkatakrishnan Srinivasan, bond market veteran, founder and Managing Partner of Rockfort Fincap LLP, said: “Investing in lower credit-rated, high-yield bonds, even with a short tenor, carries significant risks. The potential high returns come with substantial risks, particularly related to credit quality, liquidity, and the absence of a sinking fund especially if it is zero coupon bond.”

Investors should be cautious and ensure a thorough understanding of the product before investing. HNIs should weigh the risks against potential rewards, ensuring a well-diversified portfolio and conducting meticulous due diligence. Institutions and online bond portals can play a role in market-making, but the lure of high yields should not overshadow the inherent risks, he said.

With investors getting easy access to high yield bonds through wealth firms and online bond portals, it is crucial to undertake enough due diligence before considering such investment, he added.

Goswami Infratech offered a sweetener in exchange of the extension. It boosted the payment by an additional Rs400 crore. Investors will now receive Rs1,800 crore on extended maturity.

Private credit investors such Cerberus Capital Management, Varde Partners and Davidson Kampner are among holders of the security, according to a media report.

Shapoorji Pallonji Group has suffered from liquidity crunches after it piled on debt before the pandemic, compelling it to the go for offloading assets. The company earlier told investors that it might not be able to pay Rs1,400 crore, when it will become due on May 26. The company has cited certain terms. Hence, it asked investors to push the payout to later this year.

The zero coupon bond, which has recently been rated as ‘BB-’ by the credit rating agency Care, had come for the bidding on June 27 and was listed on June-28 last year. The bond will be maturing on April 30, 2026. The coupon rate was fixed at 18.75 per cent and it is being traded much below the coupon rate currently. Citing the rationale behind the revised rating, Care said in a statement that the revision in rating assigned to Non-Convertible Debentures of Goswami Infratech Private Ltd (GIPL) takes into account elevated refinancing risk associated with the NCD repayment given the moderation in credit profile at group level. Goswami Infratech has sought more time for Rupee Bond Payment. Shapoorji Group, the promoter of the company, has sought up to $2.4 billion from lenders. In what comes as a huge relief to the company, Adani Port purchase has provided Debt Relief to the corporate house.

Goswami Infratech bond also included Canyon Capital, Edelweiss, Deutsche Bank and Standard Chartered Bank.