Power transmission lines are suspended from electricity pylons (Photographer: Steve Hockstein/Bloomberg)

As India's Debt-Laden REC Plans Bond Tweaks, Investors Shrug

(Bloomberg) -- REC Ltd., a highly leveraged Indian lender to electricity projects, plans to ask holders of $1.85 billion of its outstanding dollar bonds for approval to amend terms, in order to avoid possibly having to repay those securities early.

Noteholders took the news in stride, amid the possibility that fees could be paid for their consent, with prices on the securities little changed.

The development relates to the government’s efforts to sell stakes in state-owned companies, and could set a precedent for Indian firms in similar situations seeking agreement from creditors to alter original agreements.

What’s Happening

  • REC plans to ask holders of all of its outstanding dollar bonds for permission to tweak covenants, in order to avoid breaches that would occur if state-run peer Power Finance Corp. acquires the government’s controlling stake in REC as planned, people familiar with the matter said on Monday.
  • The change of control covenants would be triggered if India’s government ceases to own more than 50% of the voting securities of the issuer, according to the bond terms.
  • Any changes in the existing covenants may be allowed by bondholders for a consent fee, the people said, asking not to be identified because the matter is private.
  • REC mandated Barclays Plc, Citigroup Inc, HSBC Holdings Plc and Standard Chartered Plc to help seek consent from bondholders for the changes, according to separate people familiar with the matter.

Market Reaction

  • The company’s dollar notes due in 2023 were steady at 101.1 cents on the dollar, according to prices compiled by Bloomberg. The price of the other dollar bonds were also little changed.

Why It Matters

  • As a key lender to the power sector, the fate of REC in the debt markets is important for the government’s goals of expanding the nation’s electricity infrastructure.
  • The tweaks in REC’s bond terms, if approved by bondholders, may become a template for other state-owned firms with offshore bonds.
  • In the recent past, India’s government has sold its stakes in firms to other state companies as it seeks to raise funds to bridge its widening deficit.

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