In today’s newspaper there is news that some government guaranteed bonds of ITI limited (the state-owned telecom equipment major), that enjoyed highest safety rating, have been downgraded to “default” rating.
http://timesofindia.indiatimes.com/Business/India_Business/ITI_defaults_on_debts_issued_bonds_downgraded/articleshow/2072793.cms
http://www.thehindubusinessline.com/2007/05/25/stories/2007052503880600.htm
With S&P raising India’s rating to investment grade earlier this year and PSUs holding government security paper worth billions, this is not a good precedent. Due to regulations, many fund managers are bound to invest in government securities and if government guaranteed bonds of a state owned company “defaults” then what signal will it give to the market and investors betting on India. What will happen to the funding cost of the companies?
It can be argued that it was a one-off incident (and amount was small too) but question to be asked is HOW did it happen in the first place. Is our finance minister taking note of it?
Friday, May 25, 2007
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