Debt Trap Looms in Convertibles on Sensex Plunge: India Credit
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Indian companies with a record $5.3 billion of convertible bonds due this year may see borrowing costs more than quadruple after the worst performance among the world’s 10 biggest stock markets.
Reliance Communications Ltd., Suzlon Energy Ltd. and Tata Steel Ltd., sold a third of the total debt, according to data compiled by Bloomberg. Their shares are trading as much as 88 percent below the bond conversion prices. Should they choose to issue debt that can’t be converted into equity to meet repayments, companies will face an average yield of 6.92 percent on dollar-denominated bonds, a HSBC Holdings Plc index shows, compared with 1.55 percent on convertible notes, according to Barclays Capital data.