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Strategy: Restructuring overshadows refinancing in March 2012
` FCCB activity: Recent and upcoming
` FCCB universe: Average yields shoot up as SUEL tranches trade at large
discounts
` KIE Generalized CB Valuation model: Mispricing and implied credit-risk
premium
Strategy
India convertibles monthly
Restructuring overshadows refinancing in March 2012. As the FCCBs of relatively
weaker issuers mature, refinancing announcements seem to be giving way to
restructuring proposals. A weaker Rupee makes redemptions less lucrative even as
yields indicate persistent concerns about Suzlon’s ability to refinance its upcoming
obligations.


FCCB activity: Recent and upcoming
Corporate announcements in the FCCB space continued in March 2012. Rolta refinanced its
current FCCB obligation (face value of US$97 mn) which will mature in June 2012, but 3i Infotech
successfully proposed an exchange offer for its outstanding FCCB obligation with new FCCBs.
Assam Company, which saw its FCCB obligation mature in November 2011, partly repaid its
obligation worth US$21.07 mn and requested a grace period until May 31, 2012 to repay the rest
of the principal of US$10.73 mn. In a murky environment, in which several weaker issuers are
restructuring their outstanding FCCBs, Amtek India has managed to raise US$130 mn through this
route, offering a 6% semi-annual coupon payment and a conversion price of Rs103.005, which is
well below the current market price. Bharat Forge’s FCCB obligation, worth US$57 mn (face value
of US$40 mn), will mature on April 28, 2012.
FCCB universe: Average yields shoot up as SUEL tranches trade at large discounts
SUEL’s rising ytms have been the main cause for the average FCCB yields shooting up to ~30%
(from ~20% last month). Even on an absolute basis, SUEL’s June 2012 tranches are trading at a
discount of 18-23% to their expected redemption values. Advanta India has almost doubled over
the past three months and currently trades at 1.8x the conversion price after raising US$50 mn
through FCCBs as recently as June 2011. After Rolta’s refinancing announcement last month,
yields fell to 11% from 20-25% as concerns eased regarding Rolta’s repayment ability.
KIE Generalized CB Valuation model: Mispricing and implied credit-risk premium
Sterling Biotech and GTL Infrastructure feature as the biggest mispricing candidates in our FCCB
universe. Sterling Biotech has been trading at 35-40% of face value, implying very high implied
credit-risk premium. GTL Infrastructure is said to have been in restructuring talks with FCCB
holders