The first default on US dollar bonds by an Indian company in 15 months may become a closely-watched test case for how international creditors will fare under the country’s new bankruptcy laws.
Reliance Communications (RCom), the Indian mobile phone operator controlled by Anil Ambani, failed to pay a coupon on its 2020 dollar notes before the expiry of a grace period, according to a person familiar with the matter. It’s India’s most high-profile default on international debt since the nation’s insolvency and bankruptcy code was passed in May 2016. The company’s shares and bonds fell to record lows.
The new rules, part of PM Narendra Modi’s push to make India more investor-friendly, are designed to speed up debt restructurings in a country whose banking system is plagued by the highest stressed-asset ratio in 17 years. An improved resolution process would not only encourage foreign money managers to increase holdings of Indian distressed debt, it could also help reduce borrowing costs for companies.
“If the restructuring is done properly and fairly, this could set a good precedent and global creditors will take comfort that debt restructuring can have a satisfactory outcome in India,” said Dhiraj Bajaj, Singapore-based portfolio manager at Lombard Odier.