Bajaj Allianz Life Annuls Trade That Sent Yield On Indiabulls Housing Bond Soaring
Bajaj Allianz Life sold Indiabulls Housing Finance bonds at a discount, and then annulled the trade.
One of the two corporate bond sales that saw yields spike to more than 40 percent this week was annulled by the seller, a rare such reversal of a trade that has only added confusion behind the transactions.
Private insurer Bajaj Allianz Life annulled the transaction a day after it sold the bonds of Indiabulls Housing Finance Ltd. to DB International Asia Ltd., a Singapore subsidiary of Deutsche Bank, at a steep discount, three people aware of the details said. They asked not to be identified as they are not authorised to share the information. The insurer informed the exchange that it was an erroneous trade, the second person said, adding that it couldn’t have been an error as three different bonds of the company were offloaded.
Bajaj Allianz Life didn’t respond to an emailed query and Deutsche Bank Singapore wasn’t immediately reachable.
Indiabulls Housing Finance and Vodafone Idea Ltd.’s bonds were sold at steep discounts earlier this week, suggesting some kind of panic sales as the yields spiked to unusually high levels. It’s still not clear who offloaded the telecom operator’s paper.
Three Indiabulls Housing Finance bonds worth Rs 210 crore, maturing in September 2021 and September 2022 and with a coupon rate of 8.57-8.90 percent, were offloaded on the debt platform of the National Stock Exchange of India Ltd. at a discount of 37-41 percent to their last traded price. That pushed effective yield-to-maturity to 31-43 percent.
The transaction was part of an arbitrage product created to take advantage of the difference in the yields on Indiabulls Housing Finance’s offshore and domestic bonds, said the second person quoted earlier. Deutsche Bank would have traded in the offshore market as part of the strategy, and the annulment would mean that it would have to be compensated, the person said.
According to exchange regulations, corporate bonds are traded over the counter and not on the platform. So, the role of the clearing corporation is just to facilitate delivery or transfer of cash. Unlike equities, it isn’t responsible for settlement and doesn’t provider counter-party guarantee.
An annulment of reported trades is rare but if the parties decide to cancel the deal, they can do so without the permission of the exchange, a senior exchange executive aware of clearing functions said on the condition of anonymity. Exchanges don’t disclose such failed transactions since these are not defaults.
It is not clear how the regulator will react to the annulment.