Lessons in Debt for Equity Analysts

Most equity analysts I have interacted with till date had little understanding of debt beyond leverage ratios. As a result, they are not able to fully comprehend the risks associated with debt. Here are a few lessons for equity analysts. 1/11 1. Unviable promoter level debt would adversely impact the operating company eventually. A promoter who is financially cornered will always look for ways to squeeze money out from the operating company. Some of these desprate measures could well be unscrupulous. 2/11

12 things to remember while buying Life Insurance:

1. Take term plan and not an endowment plan. The insurance cover is higher for a term plan for the same premium. However, you do not get maturity benefits in term plan. Remember, you are buying Insurance and not a FD. 1/9 2. Take your plan from an insurance company that is expected to survive 20-30 years. Insurance is used over long periods and therefore it is necessary to choose a company that has a size/ networth for a long life (what an irony!). Don't look beyond LIC, SBI, ICICI and HDFC. 2/9

Microfinance Institutions on the brink...yet again!!

The microfinance industry in India could never really recover from the Andhra crisis of 2009-10. Just when things start to normalise, a new crisis rocks the boat. There has been no respite. Thread 1/11 From inept legislation to demonetisation, from political interference to religious diktats and from frauds to natural calamities, Microfinance Institutions (MFIs) have been battered by every risk possible. The latest in this series of pitfalls is the Corona lock-down. 2/11

The Sovereign Rating (SR) scare for India

Recently, Standard & Poor (S&P) warned that India's SR will be downgraded if the country's economic growth does not recover. Bond yields spiked soon after the S&P red flag. Here's why India should take the warning seriously. Thread 1/11 SRs of 3 agencies - S&P, Moody's and Fitch are considered important. Currently, India is rated BBB- (Stable) by S&P, Baa2 (Negative) by Moody's and BBB- (Stable) by Fitch. Simply put, India is barely investment grade as per S&P and Fitch and a notch better as per Moody's. 2/11

The Sterling Wilson debt saga

A letter from Sterling Wilson Solar Ltd. (SWSL) dated Nov 14, informing the exchanges about the extension of debt repayment deadline granted to promoters (Shapoorji Pallonji Company Pvt. Ltd. - SPCPL & K. Daruvala) has created widespread panic. 1/14 As at Aug 19, other companies of the promoters owed Rs. 2,563 crore to SWSL. SWSL, in Aug 19, was IPO bound and the promoters, in the red herring prospectus, promised to pay off the entire debt owed to SWSL, within 90 days, from the IPO proceeds. 2/14

Insolvency & Bankruptcy Code (IBC): The story so far

IBC was enacted in Dec 2016, with the objective of ensuring speedy resolutions of NPAs. It was hailed as one of the most landmark reforms in India. This post is an attempt to understand if this code lived up to its promise.1/9 Till June, 2019, 2162 cases have been admitted. Of these, 174 have been closed on appeal or review or settled; 101 have been withdrawn; 475 have ended in liquidation and 120 received an approval of resolution plans. 1292 cases are pending. 2/9

Compilation of all my posts

It has been almost a month since I have been writing Twitter threads on finance and financial markets. Here is a compilation of all my work till date. 20 threads in all. Thread 1/11 Compilation 2/11

1) Mutual Fund - "Lemon of the Year" Award (BOI AXA MF)

bit.ly/2lZB0xr

2) Mutual Fund - "Foot in Mouth" Award (DSP MF)

bit.ly/2m0GKXO

Corporate Bond Market in India - A snapshot

Corporate Bond Market comprises of all the debt fund-raising/ financing/ fund mobilisation activities by Corporates through debt capital market instruments - Debentures or Bonds. Read on to know more about this market. Thread 1/12 As per SEBI data, the total outstanding corporate bonds in India aggregate to ~ Rs. 30.63 lakh crore.

This is about one third the size of the G-Sec market as well as the aggregate of Bank credit (i.e. total outstanding loans of banks). 2/12

State of the Economy through Charts and Tables

As the GDP growth (at 5%) slowed to a 25 quarter low in Q1 of FY 2020, let us examine the various economic indicators to understand the 'real' state of the Indian economy. Here is a thread. 1/13 1) 2-Wheeler Sales - dipped by ~17% in July, 2019. Motorcycle sales fell by 19% while Scooter sales declined by 12%. Scooters sell more in urban India. Motorcycles sell in both urban as well as rural India. The data shows distress in both India and Bharat. 2/13

Believe me! Your mobile phone activity now decides if you get a loan.

New age Fintech companies are using your mobile/internet trails to decide if you are worthy of getting a loan. Will you now think twice before hurling an abuse on Twitter or downloading a 'free' App? 1/12 More and more lending companies (Banks, NBFCs etc) are deploying powerful data analytics tool to judge the credit worthiness of a loan applicant.

So next time you wish to buy a TV on EMI, see what you've been asked to fill in an application form. It all starts from there. 2/12

State Government Debt Risk - a history that repeats too often!

As the work on building Amravati, the new capital city AP, comes to a grinding halt, concerns emerge about Amravati (APCRDA) bonds held by Franklin MF (~Rs. 1000 Cr) and Birla MF (Rs. ~300 Cr). Thread 1/11 During the Chandrababu Govt, Amravati received political as well as financial patronage. Now, with Jagan Reddy being incharge of the state, the project is in shambles. World Bank & ADB pulled out of the project and the Government is looking for reasons to scrap it. 2/n

What explains Canadian Pension Funds' risky bets in India?

Pension Funds are custodians of retrial money of public and hence are expected to be conservative. Canadian Pension Funds, however, are different. Thread 1/11 These Pension Funds are not shy of picking up assets in the troubled sectors. Real Estate and Infrastructure assets are key bets of these funds in India. They have invested in roads, airports, solar energy, commercial real-estate and other perceptibly riskier assets. 2/11

After the buildup and the crash-course in my last post, here is my post analysing Promoter Financing market in India. The analysis attempts to explain the slowdown in promoter financing in India and brings out some interesting facts. Read on to know more. Thread 1/12 As per BSE data, the aggregate value of promoters' pledged shares was ~1.85 lakh crore as at Aug 23, 2019. In comparison, the value of promoters' pledged shares stood at ~Rs 2.5 lakh crore as at Aug 30, 2018. The fall in pledge levels indicate slowdown in promoter financing. 2/12

This post is a crash course on promoter funding, which serves as a bedrock for my next post.

Promoter funding/ financing, is the colloquial term used for raising of debt funds by Promoters of companies usually against the security/ comfort of shares. Thread 1/13 A promoter, many a times, needs money for (a) equity infusion in a new/ growing business, (b) personal use (c) enhancing stake in established business (d) family settlement etc.

If he doesn't have enough cash at his disposal, he borrows from finance firms. 2/13

Rana Kapoor's Grandstanding

The Economic Times, today, on its front page, carried a news item proclaiming 'Rana Kapoor holding companies pre-pay part of loans'. Nothing can be more misleading than the use of word 'pre-pay'. Thread 1/8

m.economictimes.com/markets/stocks… The article quotes Mr. Kapoor's statement that bonds issued by promoter hold cos - Yes Capital and Morgan Credits, have been pre-paid ahead of maturity dates i.e. Oct 2020 and Apr 2021 respectively. 2/8

Germany, yesterday, issued a 30-year bond that offers negative yield (average yield of -0.11%).

This typically means that investors are paying German government to hold their debt. Why would investors invest in such a bond? Thread 1/8 The coupon set on these bonds (or Bunds, as they are called in Germany) is 0% i.e. the government will not pay any interest at all on these bonds.

In comparison, if GoI issues a 30 year bond today, the interest rate offered would be ~7%. 2/8

How off-mark were the analysts about Yes Bank stock.

Today, share price of Yes Bank crashed to Rs. 71.25 on concerns surrounding financial misreportings by Crompton Greaves Power (CGP). Yes Bank has 13% stake in CGP. The stock was trading at Rs. 400 abt an year back. Thread 1/11 For many-many years, people cast aspersions on lending practices of Yes Bank and doubted the low NPA numbers it reported quarter after quarter.

All those fears came true post cutting short of Yes Bank's MD, Mr. Rana Kapoor's term by RBI in Sept. 2018. 2/11

8 questions to ask before you invest in a Credit Fund.

Q1) How much yield should the fund offer?
A) The principle of 'higher-the-better' does not apply to credit funds. Higher yields come with disproportionately higher risks. Funds offering 11%+ are a clear avoid. Thread 1/8 Q2) How diversified is the fund?
A) A fund with higher diversification is less risky. As per regulations, exposure in a company cannot exceed 10%. Well managed funds cap exposure in one company to 5% or lower. Lower exposure means lower hit on return if an accident happens. 2/8

Today I cover the Government Securities (G-Secs) market. G-Secs, in short, are debt instruments through which Government borrows from the public (banks, financial institutions etc.). This post covers the size, type of lenders, and other broad contours of G-Sec market. Thread 1/8 The total size of the G-Sec market is approx. 92.86 lakh crore. In comparison, the size of the listed equity market (total market capitalisation of all listed stocks) was 141.47 lakh crore in July, 2019. (2/8)

Government, on August 13, issued a 'Scheme to provide a one-time partial credit guarantee to PSBs for purchase of pooled assets of financially sound NBFCs'. This scheme is a step in right direction towards solving the liquidity crunch that NBFCs are faced with. Thread (1/12) It may be recalled that the Finance Minister, in her budget speech, had made an announcement to this effect. Thid scheme attempts to address temporary asset liability mismatches of NBFCs/HFCs so that they don't have to resort to distress sale owing to paucity of liquidity. 2/12

The Yes Bank scare for Mutual Funds (MFs)

Some MFs have significant exposure to subordinated/ perpetual bonds of Yes Bank. These MFs stare at huge valuation losses if the credit rating of these bonds is cut below investment grade. Thread (1/9) The following MFs have major exposure to Basel II/ Basel III, subordinated/ perpetual bonds of Yes Bank (market value as at 31st July, 2019) -

a) Reliance Nippon ~ Rs. 2150 Cr.
b) Franklin Templeton ~ Rs. 540 Cr.
c) UTI ~ Rs. 445 Cr.
d) Kotak ~ Rs.115 Cr.

2/9