India's debt markets are undergoing a notable evolution as companies with repayment defaults manage to attract investors and raise funds. Mumbai-based Damji Shamji Realty, rated as 'D' after defaulting on HDFC Bank's loan, successfully raised Rs 95 crore from the private placement bond market. This rare instance of a rated, secured, and listed bond by a D-rated company indicates a shift in the perception of junk bonds. The move, facilitated by ASK Real Estate Special Opportunities Fund IV, highlights the potential development of the bond market in India and offers distressed companies an avenue for fundraising, emphasizing the role of cash flow stability over traditional credit ratings.
India's debt markets are displaying signs of maturity as companies facing repayment defaults still manage to attract investors and raise funds. In a noteworthy development, Mumbai-based Damji Shamji Realty, rated as 'D' (indicating default) by India Ratings and Research after defaulting on HDFC Bank's loan in April 2022, successfully raised Rs 95 crore from the private placement bond market in mid-December. The fundraising, a rare instance of a rated, secured, and listed bond by a D-rated company, highlights the evolving landscape of India's debt markets, indicating a potential shift in the perception of junk bonds.
Damji Shamji Realty's ability to secure Rs 95 crore from the bond market, despite its default status, marks a departure from conventional expectations. The real estate company defaulted on HDFC Bank's loan, resulting in the assignment of a D rating by India Ratings and Research. ASK Real Estate Special Opportunities Fund IV emerged as the sole investor, providing a three-year debt facility with a 22% internal rate of return. The funds raised will be used to repay a Rs 70 crore HDFC Bank loan and allocate Rs 25 crore for working capital to complete an ongoing project on Ghodbunder Road, Thane, named Mahavir Kalpavruksha.
Bhavin Jain, Chief Investment Officer at ASK Property Fund, noted that the investment from the closed debt fund was aimed at supporting Damji Shamji Realty's residential project, offering last-mile funding to refinance the existing lender and provide additional working capital for project completion.
The rarity of such fundraising lies in the fact that Damji Shamji Realty opted for a rated, secured, and listed bond, a move typically uncommon for companies with a D rating. The scenario underscores the role of special situation funds, which, unlike traditional investors such as banks, insurance companies, or mutual funds, are willing to invest in companies with lower credit ratings.
While instances of stressed companies raising funds from the bond market exist, most are unlisted and unrated. Special situation funds, however, prioritize safeguarding cash flows to prevent defaults rather than focusing on the rating or listing status of the company, according to a treasury head at a bank. Damji Shamji Realty's bond issuance, though a rare occurrence for a D-rated entity, holds the potential to contribute to the development of the bond market in India.
India Ratings and Research have indicated the possibility of upgrading Damji Shamji's rating if there is timely servicing of three consecutive instalments. The issuance of listed non-convertible debentures by such entities is seen as beneficial for deepening the bond market, providing borrowers with ample time to repay debts and manage liquidity effectively.
Venkatakrishnan Srinivas, Founder and Managing Partner of Rockfort Fincap, a debt advisory firm, highlighted the positive aspects of such structured bond issuances, suggesting that they enable issuers to forecast outstanding payments and manage liquidity well in advance. The emergence of such bond issuances could potentially pave the way for the creation of a market for junk bonds, attracting investors across various segments of the rating scale.
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