India QIP risk factors reveal banking sector woes

Author: Ashley Lee | Published: 17 Jul 2014

India’s equity markets are taking off, with heavily indebted corporates completing equity placements to deleverage. But market participants have expressed concerns about risk factors in their offering documents.

Post-election India’s capital markets are reaching new heights, and heavily leveraged corporates are rushing to raise equity to decrease their indebtedness.

They’re moving so quickly that they often don’t have time to receive approval from their lending banks – even if it’s technically required in their loan agreements’ covenant package. And one enforcement action may trigger cross-default provisions.

Market participants outside India are puzzled that heavily indebted corporates are testing their lenders’ inaction on covenant breaches. Those inside India are less surprised because companies in certain sectors need to raise equity.

Given the fickle nature of the capital markets, it might be best to raise deleverage first and negotiate later.

"The first wave of companies that have hit...