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Circular trading in debt
Perpetual and Subordinated bonds of financial institutions are difficult to sell because of long tenure, low payment priority and unsecured nature of instrument.
It is even more difficult to sell these if the institutions have dubious reputation. 1/3
Perpetual and Subordinated bonds of financial institutions are difficult to sell because of long tenure, low payment priority and unsecured nature of instrument.
It is even more difficult to sell these if the institutions have dubious reputation. 1/3
Such perceptibly bad financial institutions often have to pay very high interest rates to sell these bonds.
Not borrowing through Perpetual/ Subordinated bonds is also not an option since these bonds serve as proxy to costly equity capital in capital adequacy calculations. 2/3
Not borrowing through Perpetual/ Subordinated bonds is also not an option since these bonds serve as proxy to costly equity capital in capital adequacy calculations. 2/3
So what do these institutions with dubious reputation do? Simple. Buy each other's Perpetual/ Subordinated bonds.
Have you ever wondered why Yes Bank, Reliance ADAG (NBFCs & MF), DHFL and Indiabulls have/ had a sizeable exposure to each other's bonds? 3/3
Have you ever wondered why Yes Bank, Reliance ADAG (NBFCs & MF), DHFL and Indiabulls have/ had a sizeable exposure to each other's bonds? 3/3
