InvestorQ : How come Kesoram Industries managed to find buyers for its bonds despite being rated in the junk category?
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How come Kesoram Industries managed to find buyers for its bonds despite being rated in the junk category?

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9 months ago
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When Kesoram Industries had announced its plans to raise a large sum of money through the issue of junk bonds last week, the markets were quite sceptical about the likely response. However, the response has been much better than expected and clearly there a distinct market in India now for such low-grade high yielding bonds.

In fact, Kesoram Industries of the Birla group was trying to raise Rs.1,600 crore via junk bonds with yields that could conditionally go as high as 21%. Despite being rated “D” or in Junk Category by CRISIL, the bond issue managed to find substantial interest from buyers. In fact, Goldman Sachs, Cerberus Capital and Edelweiss and a few others bought into the junk-rated rupee bonds sold by Kesoram Industries, lapping up the full Rs.1,600 crore issue.

This is despite the fact that Kesoram had defaulted on its debt last year and it has an outstanding debt on its books of Rs.4,600 crore. This is clearly indicative of the fact that investors across the world are currently starved for yields. Large institutional investors are even willing to risk going well down the rating curve in search of higher yields.

However, the investors have also built a second line of defence in the event of any possible default. The holding company of Kesoram Industries will also pledge shares of the company with these investors as additional security against which these bonds will be issued. These bonds will carry the additional security of pledging shares with investors, to sweeten the risk entailed in investing in “D” rated bonds in India.

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