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Prime Minister Narendra Modi to Address Nation Tomorrow, Lockdown Expected to be Extended

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 13, 2020 4:00 PM 5 min read
Editorial

Prime Minister Narendra Modi to address nation tomorrow, lockdown expected to be extended. Reliance Industries Limited plans to raise up to ₹10,000cr ($1.3bn) via bonds. OPEC+ approves deal to cut oil supply by a historic 20%.

 

 

CRUDE OIL

 OPEC+ approves deal to cut oil supply by a historic 20%.

Sign in Oil

OPEC and its allies have agreed to oil cuts which will be the largest in history in a long-fought attempt to support oil prices, which have reached record lows on the back of historically low demands amidst the coronavirus pandemic.

 

The unprecedented deal will see global oil supply cut by 9.7m barrels per day (bpd) or by 20%, four times more than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in productions will stay in place until April 2022. [Reuters]

 

Extra Crunch

The countries that signed the agreement on Sunday is a loose 24-member organisation of crude-producing nations called OPEC+. They are led by Saudi Arabia and Russia. As for why these two petrostates are quarrelling over oil supply and prices, read this article. [TRANSFIN.]

 

Analysts say oil prices could continue to fall, nonetheless. 

Too Little, Too Late?

Will the deal be sufficient to rescue oil prices? Goldman Sachs doesn’t think so. It said the “historic yet insufficient” pact would not be able to offset the COVID-induced demand rout. Another Wall Street Bank, Morgan Stanley, said the deal will not stop stop reductions but slightly raised its oil price forecasts. [FXStreet]

 

 

COMPANIES

Oyo and SoftBank stare at losses amidst pandemic. 

Oh No, Oyo!

The streets are empty, the #wanderlust trekkers are nowhere to be seen, and meetings and conferences have gone virtual. It’s hotel chain giant Oyo’s worst nightmare come true. The company is freezing operations and furloughing thousands of employees as travel – and business – has ground to a halt.

 

Oyo’s problems are also a thorn in SoftBank’s side. The Japanese conglomerate, still reeling under the WeWork fiasco, had bet big on Oyo, which at $10bn is one of the most valued companies in SoftBank’s portfolio. CEO Masayoshi Son had even personally guaranteed $2bn worth of loans that Ritesh Agarwal had taken from financial institutions recently. If Oyo’s valuation drops, both men face personal losses. [BBG Quint]

 

RIL plans to raise up to ₹10,000cr ($1.3bn) via bonds. 

The Name's Bond

Reliance Industries is reportedly in talks with banks to raise as much as ₹10,000cr ($1.3bn) in a bond sale this week, equivalent to about a tenth of the special funding facility provided by the RBI. The Central Bank is lending ₹1Lcr ($13.2bn) under Targeted Long Term Repo Operations (TLTRO). Others accessing the window include HDFC Bank, National Housing Bank, Housing and Urban Development Corp and Power Grid Corp of India. [ET Markets]

 

BANKING

China’s central bank takes 1% stake in HDFC. 

Raise the Stakes

India’s largest private lender by assets has a stakeholder in China’s central bank. The People’s Bank of China (PBOC) has acquired 1% stake in HDFC. This is not a new development – PBOC held a stake in HDFC even before this, but this stake was gradually hiked until it reached 1%, which is the regulatory threshold beyond which companies are required to disclose the names of its shareholders. [ToI]

 

Banks worry about mass defaults as cab drivers go home.  

Death by Default

Two statistics are making Indian banks have sleepless nights. One: 60% of drivers employed by ride-hailing platforms are migrants. And two: 80% of cabbies have availed bank loans for their vehicles. With the pandemic shutting down the industry, drivers are returning to their hometowns and many may not return to their previous jobs – thus defaulting on their loans. How much is at stake? ₹30,000cr ($3.9bn) has been borrowed on account of cabs from banks and other lenders. [ET Tech]

 

 

THE PLIGHT OF NBFCs

State-run banks hesitant as SBI denies the three-month moratorium on loan EMIs to NBFCs. 

Fire in the House

The RBI recently allowed borrowers to not pay any equated monthly installments (EMIs) for any loans until June 30th, subject to individual bank policy.

 

Now while some private banks have come forward to extend his facility to Non-Banking Finance Companies (NBFCs), state-run banks have been rather hesitant to do so following SBI's decision to not grant or keep the NBFC segment out of the moratorium. 

 

Following the confusion, NBFCs have sought regulatory intervention so that banks provide them the relief. [ET Banking]

 

About 100 top NBFCs accounting for almost 80% of the total assets comfortably positioned to meet their payment obligations, say sources.

Twin Challenges

While NBFCs have provided their customers a three-month moratorium, a similar relief has not been extended towards them by banks. 

 

While large lenders will be able to tap into the RBI’s ₹1trn ($10bn) targeted longer term refinancing operations window, other smaller lenders are likely to face cash shortage. To add to the worries, debt repayment worth ₹2.5trn ($30bn) is coming up for redemption by June.

 

As per Crisil if the moratorium is not extended towards NBFCs by lenders, only 37% of the NBFCs it rates will have liquidity cover of more than three times their total debt repayment at the end of May 2020. On the other hand, 11% of the NBFCs will have liquidity cover for less than one time, making them unable to service debt during a time when collections have not stopped but tanked severely. [Financial Express]

 

Secret Trove?

Meanwhile, as per some sources, about 100 top NBFCs, which account for almost 80% of the total assets of the shadow banking system, are comfortably positioned to meet their payment obligations and qualify to get funding from banks if they face stress. [ET Finance]

 

COVID-19

Prime Minister Narendra Modi to address nation tomorrow, lockdown expected to be extended.

Corona India Update

India’s coronavirus case count is roughly double of what it was a week ago. This is a slower pace of growth than a few days ago, when cases were doubling every four days, but the curve is still steeper than those of several Asian peers including Singapore and Japan. And even with this trajectory, the number of cases could rise to 20,000 over the coming week or so. Meanwhile, the death toll is doubling at a rate of every five days. [Livemint]

 

FYI

Prime Minister Narendra Modi will address the nation at 10 am tomorrow, which is the day the 21-day lockdown is scheduled to end. There are speculations the Government will reopen the economy in a “graded manner” while many expect the lockdown to be extended by two more weeks. [Business Today]

FIN.

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