Companies keen on rejigging bond terms

Mumbai: Many large listed companies have sounded out some of the bond trustees in the last 24 hours on the possibility of rejigging the terms of debt securities they had floated.

More than ₹60,000 crore of interest and principal on non-convertible debentures (NCDs) issued by corporates are coming up for payment in the next one month.

Unlike loans which are often rescheduled by banks at the instance of borrowers who find themselves under stress, key features of bonds and debentures — like dates of interest payout and tenor of security — are not usually changed in the financial market.


“Around eight to 10 large companies have contacted us… I cannot disclose the names. Understandably, this follows the Sebi announcement on Monday,” said Sanjay Sinha, MD, Axis Trustee Services.
‘Consent of NCD-holders Must’

“The announcement, among other things, said that if an issuer reschedules debts before the due date with the approval of investors, then rating agencies will not treat such delays as default,” Sinha said.

In the absence of ‘default’ and rating downgrade, investors are unlikely to pull out money from mutual funds. MF schemes holding the NCD will not report a dip in their net asset values (the price of an MF unit) that typically happens when a security is revalued following a downgrade.

According to market sources, close to Rs 1 lakh crore of NCD interest and repayment will be due over the next six months (out of this about 60% constitutes repayment of principal). Besides fund houses, insurance companies, pension and provident funds, trusts, and high net worth individuals are among the large investors in NCDs.

In the absence of regulatory forbearance, mutual funds, which act as passthrough vehicles, are disallowed by Sebi to reschedule bonds.

“Any rescheduling will have to be with the consent of NCD holders. Bonds are not typically rescheduled. But these are abnormal times. If large companies fail to service debentures, MFs would suffer and this could slowly contaminate the financial system,” said a senior person in the bond market. “A change in NCD tenor or interest payout dates would, however, have an effect on the trading and secondary market prices of these bonds,” said the person.

Debenture trustees, which are regulated by Sebi and are responsible for monitoring payment of interest and redemption of principal, tracking security cover and other financial covenants, besides addressing investor grievances, have to remind issuers about the forthcoming payment obligation a week before the due date. Given the economic uncertainty caused by Covid-19 and the schedule of payments that are falling due, some of the bond trustees are likely to get in touch with large investors if the payment of interest or principal has to be pushed back by a few months.

A few NBFCs and housing finance companies may want to reschedule their NCDs, said market sources.

In its circular issued on Monday, Sebi also said that if rating agencies are of the view that the delay in payment of interest or principal has arisen solely due to the lockdown conditions creating temporary operational challenges in servicing debt, the agencies may not consider the same as a default event and/or recognise default.