,
8 tweets,
2 min read
Read on Twitter
Excellent piece.
NBFCs are fragile for many reasons but the one which is highly visible right now is to do with oxygen. Buffett wrote about it in his 2010 letter:
"Companies with large debts often assume that these obligations can be refinanced as they mature."
NBFCs are fragile for many reasons but the one which is highly visible right now is to do with oxygen. Buffett wrote about it in his 2010 letter:
"Companies with large debts often assume that these obligations can be refinanced as they mature."
"That assumption is usually valid. Occasionally, though, either because of company- specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job."
"Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees."
Oxygen is necessary for human life. Another gas, however, is deadly: Carbon monoxide, a colourless, odourless, poisonous gas found in mines and which used to kill coal miners in Britain back in the early 20th century.
Until Scottish physiologist John Scott Haldene came up with an idea.
He suggested using canaries in mines, a bird more sensitive to the poisonous gas than humans. If the bird became ill or died, that would give miners a warning to evacuate.
He suggested using canaries in mines, a bird more sensitive to the poisonous gas than humans. If the bird became ill or died, that would give miners a warning to evacuate.
And lo and behold, miners stopped dying because of inhaling too much of carbon monoxide. And Britain wasn’t the only country to adopt Haldane’s suggestion. The United States and Canada did it too.
Eventually, "canary in a coal mine" became an expression of an advance warning of some impending danger.
IL&FS was the canary in the Indian NBFC coal mine...
