Critical days ahead for investors, financial sector

Investors will get crucial clarity in the coming days on the health of India's Rs 130 lakh crore ($1.75 trillion) financial sector.

The nation's biggest developer, Lodha Developers International Ltd, is racing to refinance $324 million debt maturing on March 13, and any stumble could lead to one of India's largest offshore bond defaults. Then, a day later, Yes Bank is due to announce its results, which would shed light on what pushed authorities to seize the lender last week. Finally, March 17 is the deadline for Vodafone Group struggling Indian unit to pay $4 billion in overdue fees to the government -- if it opts for bankruptcy instead, the impact will ripple across the financial system.

The government can ill afford more stress; the economy is set to decelerate to an 11-year low and the coronavirus outbreak threatens to delay a revival. The Reserve Bank of India has come out twice in less than a year in a rare show of assurance to depositors that the nation's banking system is safe.

"This is an important week for India in terms of the potential revival of the economy, given the close inter-linkages between the financial and corporate sector," said Madhavi Arora, an economist at Edelweiss Securities Ltd. "Some light on the resolution of corporate stress this week would be crucial in determining the banking and non-banking financial system's health, at a time when domestic growth is fragile and credit conditions are tight."

Lodha Developers International last week fell short of the top end of a fundraising range in a pivotal deal to refinance its existing note due on March 13, and was set to launch a tap this week. It also needs to meet conditions, including setting aside cash and getting consent from some of the group's other lenders, before it can use the proceeds of the new bond. Moody's Investors Service had earlier warned that Lodha didn't have an alternate plan to repay, and that any failure to meet the complicated conditions would "likely lead to a default."

In the case of Yes Bank, the lender delayed the announcement of Q3 earnings to March 14, saying it was busy trying to raise capital. In the interim, Yes Bank's worsening liquidity condition and lack of commitments from potential investors forced the central bank to overthrow Yes Bank's board and effect the nation's biggest bank rescue that could wipe out some bondholders. The extent of the deterioration in its financials will be clear on Saturday.

Vodafone Idea, which has more than $14 billion in net debt and hasn't reported a profit in more than two years, must pay the government $4 billion by Tuesday, March 17, or risk contempt of court proceedings. In December, chairman Kumar Mangalam Birla warned of a potential collapse in the absence of any relief over the payment; British partner Vodafone has completely written off the value of its 45 per cent holdings in the venture and signalled it isn't keen to invest more.

Banks will "have to pay the price" if any telecom firm files for bankruptcy, Rajnish Kumar, chairman of State Bank of India, said last month. Reports said the government may clear a bailout package this week.

—Bloomberg