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Fixed Income

The Owner of Deccan Chargers Defaults

(This is a story via Dheeraj Singh) Deccan Chronicle Holdings Ltd. (DCHL), the owner of the Deccan Chargers IPL team (and the newspaper business, the Odyssey bookshops, Netlink ISP and so on) has defaulted on it’s debt. Says, Care, which has downgraded the rating on DCHL’s short term debt to "D" (default):

The revision in rating is due to default by the company on short term Non Convertible Debentures (NCD). As per the company’s submission, it had outstanding cash balance/ FD amounted to Rs.372 crore as on December 31, 2011 and gross cash accruals for the last quarter (1st January to 31st March 2012) of FY12 amounted to Rs.20 crore. Despite aforementioned liquidity, the company has defaulted on its debt obligations. The company has not offered any explanation regarding the same.
The ratings have been placed on ‘credit watch’ as CARE is in the process of seeking additional information/clarification from the company. CARE will take a view on the ratings once clarity is available on the same.

This is strange, as in, the company seems to have the money but won’t pay. Of course, books are very different from the real story. Either ways, this is likely to be classified as a wilful default.

DCHL had some debt coming due on 29th June, which might be the bonds in default (these were 5 year 8% bonds, interest paid monthly). There is some commercial paper coming due on the 10th and 15th of July – I checked the recent portfolios of some of the short term debt funds I own and they don’t seem to have them, but it’s also likely that a mutual fund sponsor or AMC will take the hit to protect investors. (No one wants to see a default in what is supposed to be a safe portfolio).

This might impact other debt that DCHL has issued; the traded prices could fall if investors attempt to exit in panic.

If this is the beginning of the default situation, then be aware that your investment in mutual funds could be hit if they hold a defaulter’s debt in their portfolio. We’ll attempt to uncover which mutual funds hold the suspect debt.

Finally, remember that this could be fixed if DCHL just repays the bonds, since they supposedly have the cash. A late repayment will be considerably suspect (why not do it in time?) but it will help a fund that owns the distressed debt (they’ll be "made whole").

DCHL is also a traded company. It’s stock isn’t overly bothered, though it’s fallen a lot:

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Wonder what this starts off, as a cycle.

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