Saturday, December 06, 2008
RBI Release: Rate Cuts, Sector Sops
Just 1%? I believe a much bigger response is necessary, but then that's what it is for now. Load up on Gilt funds - that's my response. A lot more is going to come; this is very insufficient. Gilt watch: the 2018 g-sec is already trading at a yield of 6.76%. (It may not come down to 6.5%, but if it does, the gilt will see a price rise of nearly 2%)
- SIDBI and NHB to get short term funds - 7000 and 4000 cr. respectively. This is largely to try and lend more to small and medium businesses. (My opinion: Hot air. Not going to do much)
- FCCBs can now be bought back, through I-banks, even without using forex reserves (of a company). Companies can issue ECBs (essentially, non convertible loans) at a 15% discount on the book value of the current FCCB. [I honestly don't understand this point - shall have to find out what it means]
- FCCBs can also be bought back using rupees - but only at a 25% discount (whatever that means) and with a limit of $50 million drawn only from internal accruals (companies can't go get local debt to pay back FCCBs)
- Housing loans for under 20 lakh are now "priority sector". This helps with certain priority sector committments banks have to follow.
- Earlier, commerical real estate loans, if "restructured" classified as NPAs or something close. Now a relief has been given - they're not going to be called "non performing"l; they will be "standard". (Go on, builders, ask your bank to restructure!) This does not apply to your home loan because you are strictly small fry.
- Second restructures - meaning, I tried but I can't even pay back the lowered EMI or principal or interest, so help me again - also needn't become NPAs, they go into "standard" loans.
I still don't know some of the terms ("discount to nominal value of the FCCB") - if someone does, could you help?
This should perk up the markets - nowadays, anything helps. But it doesn't look good in the longer term - deeper, bigger cuts are needed.
Labels: Crisis2008
3 Comments:
Still the possibility of Corporate defaults on FCCBs cannot be ruled out in 2009.
Those who roll over will have huge interest payment liabilities to Indian Banks/ECB which will dent their EPS.
On the FCCB front ... The RBI so far didnt allow u to buyback the bonds that u had issued. In the current credit squeeze some of these bonds will be quoting far below the face value of the bond. So like buying back share because the company believes that the share price is at a discount to the intrinsic value, RBI is now allowing companies to buyback their debt with following conditions
1) In case the company has forex reserves/ earning or can issue fresh FCCB then use the amount to buyback its FCCB at a minimum discount of 15%.
2) In case there is no forex reserve/earning for the company then the discount should be atleast 25% of the face value.
So far the RBI's objective was to conserve forex in uncertain times, it is now moving to let companies buyback debt if it is available cheaply and reduce external borrowings.
Ninad
http://betweenthelinesin.blogspot.com/
Disclaimer: The author of this page is not a registered financial advisor, and you should not construe anything written here to be investment advise. You should consult a qualified broker or other financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. No representation is being made that any investment made on the basis of data or information on this blog will result in profits. Te author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments. In short: Apply your own thoughts before investing; I could be wrong. I do not accept responsibility for any losses incurred by interpretation of content in this blog. Further all content on this blog is free to view; no reader is expected to pay any amount as fee or any other consideration to me (the author) for reading my views.