Fitch Says 20% of Indian Convertibles at Risk of Default in 2012

The risk of default is “extremely high” for 20 percent of Indian company foreign-currency convertible bonds due this year, according to Fitch Ratings Ltd.

Another 17 percent of the debt may be restructured, mostly by extending maturities, Amey Joshi, a Mumbai-based analyst at Fitch, wrote in a report dated yesterday. Investor recoveries may be low in the event of a default, he wrote.

“Some of the convertible investors have purchased credit protection measures, like credit-linked notes and credit default swaps from various institutions including the overseas branches of Indian banks,” the report said. This may encourage banks to provide loans for them to refinance the maturing debt.

The remaining 63 percent of borrowers are in a better position to repay the debt, according to the report that studied 59 companies with the bonds due in 2012.

Nineteen companies have either a “high” risk of default or restructuring, Fitch said. At least 26 issuers show deterioration in interest coverage because of limited access to funding options, according to the ratings company.

Reliance Communications Ltd. (RCOM), India’s second-biggest mobile-phone operator by subscribers, is due to repay $1.18 billion of convertibles on March 1, the largest by any domestic company this year, the company said in an e-mailed statement to stock exchanges on Feb. 16.

The company received approval from the central bank to fund the repayment through loans from Industrial & Commercial Bank of China Ltd., China Development Bank Corp. and Export-Import Bank of China, according to the statement.

Suzlon Energy Ltd. (SUEL), India’s biggest wind-turbine maker, has a total of $389 million of equity-linked debt maturing in June and October, according to data compiled by Bloomberg. Tata Steel Ltd. (TATA), India’s largest producer of the alloy, will redeem $382 million of convertible bonds in September, the data show.

To contact the reporters on this story: Anurag Joshi in Mumbai at Chakradhar Adusumilli at

To contact the editors responsible for this story: Shelley Smith at Grant Clark at

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