Goldman’s India Blue-Chip Bond Picks Gain After 2015 Junk Flop

  • Bharti rises after joining ‘most favored’ list in February
  • Indian Oil, NTPC, ONGC beat Lodha Developers since additions

Goldman Sachs Group Inc. is redeeming itself calling India’s dollar-bond market this year after a junk-bond bet flopped in 2015.

Notes issued by billionaire Sunil Mittal’s Bharti Airtel Ltd. are among the top Indian performers in a high-grade bond index three months after the U.S. bank named them in its “most-favored” list. Indian Oil Corp. gained since it was added in October, while NTPC Ltd. and Oil & Natural Gas Corp. extended advances since they were picked in 2014. The lone high-yield bet, Lodha Developers International, delivered losses until March.

Confidence in Bharti debt is returning after Mittal raised almost $2 billion selling assets in Africa and its cellphone business has improved its profit margin. India’s economy may grow 7.6 percent in the year to March 2017, from about 7.5 percent this year, according to a Bloomberg survey of economists. There have been 12 straight weeks of net inflows into emerging-market debt funds as the Federal Reserve pared its rate-increase outlook, according to EPFR global data.

“Bharti is well positioned among competitors and we feel comfortable holding the credit,” said Philipp Good, head of portfolio management in Zurich at Fisch Asset Management, which managed the equivalent of $9.3 billion asset on March 31. “They benefited from inflows into emerging markets and India is a consensus overweight.”

Bharti’s 5.35 percent 2024 notes have returned 4.9 percent since Goldman’s selection in a Feb. 19, according to Bloomberg-compiled prices. The compares with a 3.2 percent gain in an index of Indian investment-grade debt compiled by Bank of America Merrill Lynch. They are ranked BBB-, the lowest investment grade, by S&P Global Ratings.

Goldman didn’t immediately reply to e-mail seeking comment on Bharti. In its report, Goldman favored Bharti because its yield spread was attractive. The premium to Treasuries reached 318 basis points on Feb. 12 from 270 when the notes were sold in May 2014. It has since narrowed to 222.

Bharti has a more than 30 percent market share by revenue in India, and is the third-largest telecom company globally in terms of subscribers, according to S&P. Net debt rose to $12.7 billion by March 31 from $10.7 billion a year earlier, almost matching its $14.7 billion in revenue, the company said in an April report. It had $1.2 billion of short-term borrowings on March 31.

Bharti has an ongoing focus on diversifying its debt profile, mix and tenors, the company said in an e-mail reply to questions. “We take early steps in preempting our refinancing requirements as per our future debt maturities and any liquidity requirements,” it added.

“We believe Bharti Airtel is committed to its investment-grade rating and is therefore mindful of its financial leverage,” said Mehul Sukkawala, the primary analyst on Bharti at S&P in Singapore. Its debt to Ebitda could fall to as low as 2.5 times this year from about 3 times, he estimates.

2015 Blemish

Goldman abandoned five of six recommended top global trades for 2016 just six weeks into the year because of a weak dollar and risk aversion. Its bets in India did better with Indian Oil’s 2023 notes gaining 5.8 percent since the buy-call on Oct. 2. NTPC’s 5.625 percent 2021 bonds rose 12 percent since their selection in October 2014, while ONGC’s 2023 notes surged 29 percent since January 2014. Goldman added ICICI Bank Ltd.’s 4 percent notes due March 2026 on May 13.

Goldman recommended Lodha’s 12 percent 2020 notes on May 19 last year when at 102.5 cents. At a record-low 81.75 cents on Sept. 28, investors would have lost 18 percent on the trade, according to Bloomberg data. It only turned profitable from March 15 as the high coupon swelled returns. Moody’s Investors Service cut its rating one step to B1 on Tuesday.

Fund inflows have helped cut the spread on high-grade Indian dollar-based notes to a five-month low of 191 basis points over Treasuries, the Bank of America index shows. The spread widened to a two-year high of 246 on Feb. 25.

“Spreads for most Indian corporates and financials have tightened compared with other emerging-market economies,” said Raj Kothari, a bond trader in London at Sun Global Investment, which also owns Bharti’s 2024 notes. “The international market has a lot of confidence in India’s growth story.”

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