India faces mass default and restructuring as devaluation looms

[Hafizzz]

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India faces mass default and restructuring as devaluation looms
India faces mass default and restructuring as devaluation looms | Reuters

SINGAPORE, May 22 (IFR) - India's mounting economic and political woes are prompting market players to raise the specter of a Greek-style crisis in Asia's third largest economy.

This is not simply idle speculation. Last Friday, the rupee crashed to an all-time low against the dollar of 54.9 and it was stuck most of Tuesday at the psychologically significant Rs55/USD level, where the currency is seen as having no obvious technical support. And the implications of a rupee collapse would be immense.

"It could go to stratospheric levels against the dollar and it looks to me as if the Indian government is aiming at a de facto devaluation in an effort to prop up flagging economic growth. And you then have to worry about all the unpleasant boxes such an action would inevitably tick, such as straining further the country's already strained balance of payments as well as bringing on an almighty wave of inflationary pressure," said a credit analyst at a ratings agency in Singapore.

He added that a spike in the rupee would strain the cashflow of corporates and banks as they struggled to service dollar-denominated debt and that the odds of a widespread Indian debt restructuring would be low.

In his opinion the market will determine the rupee's level, with a formal devaluation seen as unlikely given the consequent need for interest rates to be pushed significantly higher to contain capital flight and counter toxic inflation levels.

This scenario was seen in the UK in 1992 when the country exited the ERM and the government pushed short term interest rates up to 15% from 10%, spending billions of pounds of reserves to defend the currency in the process.

Should something similar occur to India, it would almost certainly lose its coveted investment-grade rating, with a one-notch demotion required for that to occur. S&P has India on negative watch for its Baa3 foreign currency rating while Moody's and Fitch retain a stable outlook on the country.

As the country's government faces political impasse amid infighting, principally between prime minister Manmohan Singh and finance minister Pranab Mukherjee on the subject of tax reform, and India limps from one corruption scandal to the next, the sense of decay is palpable.

Surprisingly, India's deteriorating economic fundamentals and toxic politics have not yet impacted the relative value of its issuers offshore debt. In fact, on Tuesday India's dollar offshore curve recovered the 10bp it had widened on Monday. But that situation is unlikely to hold much longer.

"As market players start to fret about the possibility of a full-blown rupee devaluation, you will see this start to impact spreads on the country's offshore curve. If the currency goes in a big way, you will have a unilateral replaying in India of the Asian financial crisis, which involved default on short-dated offshore debt and a mass round of debt restructuring. India is hanging in the balance right now, and the worst case scenario seems increasingly likely to play out," said a Hong Kong-based syndicate head.

Just as the tide moves against them, though, Indian corporates are seeing the need for offshore funding increase. According to the credit analyst, many Indian corporates have reached borrowing ceilings with local banks and are sizing up offshore bond issuance as a result. That would be a tall order and an expensive trip, though.

With massive convertible maturities coming up, some in dollars, a local market that is increasingly saturated and has less support from foreign investors and a closed dollar market, it seems inevitable that restructuring will soon become the main activity for Mumbai-based investment-bankers.

[Chinese-Dragon]

Now the Indians are going to say that "Reuters" is Chinese propaganda.

Or that S&P has been mind controlled by the ISI.

On topic, it seems like the Indian government failed in its recent attempt to shore up the value of the Rupee:

India Forces Local Exporters to Buy Rupees in Move to Lift Currency - Wall Street Journal

[kawaraj]

I don't say RBI or your PM is doing anything about.

Don't Panic for the Rupee crisis, said the FM one month ago and now he's shut up in facing a real one.

At this moment INR is 10 percent less value than when he said, "don't panic".

[lem34]

Now the Indians are going to say that "Reuters" is Chinese propaganda.

Or that S&P has been mind controlled by the ISI.

On topic, it seems like the Indian government failed in its recent attempt to shore up the value of the Rupee:

India Forces Local Exporters to Buy Rupees in Move to Lift Currency - Wall Street Journal

This is incredible. I wonder how India is going to pay for all those weapons it has purchased.

[indianrabbit]

Both boom and doom are hyped, especially when you have to sell the news. Our leaders are not stupid, if there is something that wrong they would have known. Rupee slide is temporary, would not last very long.

[Secur]

Both boom and doom are hyped, especially when you have to sell the news. Our leaders are not stupid, if there is something that wrong they would have known. Rupee slide is temporary, would not last very long.

Its really foolish to put your faith in leaders , when have they ever told public the truth ?

Hope so ...

[Aramsogo]

Indian dude claims 100 Rupees to the dollar in 3 years.

Jas Jain Commentary: Dollar Projections & US Currency Manipulation

The good news is H1Bs can go home and live like sultans at 100 INR/USD.

[Hafizzz]

This is incredible. I wonder how India is going to pay for all those weapons it has purchased.

This might ring a Bell :
UK continues £1bn India aid despite 'peanuts' jibe - UK Politics - UK - The Independent

[somebozo]

This is incredible. I wonder how India is going to pay for all those weapons it has purchased.

In incredible indian ruppee what else!

Indian dude claims 100 Rupees to the dollar in 3 years.

Jas Jain Commentary: Dollar Projections & US Currency Manipulation

The good news is H1Bs can go home and live like sultans at 100 INR/USD.

Not sultans but maharajas!

[karan.1970]

With elections in India looming and nothing much to show for, the congress govt needs a successfully resolved crisis. Real or manufactured.. Lets see how this goes down

[CaptainJackSparrow]

Pakistanis making fun of Indian Rupee's slide is really rich, you know.

One begger making fun of another somewhat better off begger.

On topic, it's the global crisis that's showing its effects. Indian economy's fundamentals remain strong.

This is a temporary phase.

[NALANDA]

Currency depreciation also has plus points for the economy:-
1) Competitive exports ( neighbors headache increases further)
2) BPO/ KPO becomes more and more competitive leading to more jobs being outsourced to India.

Corporates that have taken loan , have hedged them ( I am a corporate banker and India we do not give any external commercial borrowings till it is hedged) and this is not factored in above doom and gloom news. So the defualt is not likely by corporates...though they will try to utilize the situation to seek restructuring of loans ( which RBI has already allowed few months back).

Govt purchases is not an issue however cost of petroleum producst are going to hurt. This will lead to more desire to stay with Iran..

[Dr. NooB NinjA]

Indian Rupee down to Rs 56 per $...!!!

Now I say ....

[Chinese-Dragon]

And Indians are still arguing between Congress/BJP/Regional parties. The result is that the country is held hostage to regional players like Mamata, who can shut down retail FDI and any other reforms whenever they please. Policy paralysis.

What India should do now, is give Congress a majority, so that they can actually do something in these two years, instead of being held hostage by their allies.

Then in 2014, they should kick Congress out for being losers, and give BJP the majority instead.

[Rajaraja Chola]

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And Indians are still arguing between Congress/BJP/Regional parties. The result is that the country is held hostage to regional players like Mamata, who can shut down retail FDI and any other reforms whenever they please. Policy paralysis.

What India should do now, is give Congress a majority, so that they can actually do something in these two years, instead of being held hostage by their allies.


Then in 2014, they should kick Congress out for being losers, and give BJP the majority instead.

Sensible..As u said policy paralysis created by mamata...
But this will continue till greece eurozone crisis.. and every country are buying back dollars.. So the prob...........................