Brief India: ­­Asian Credit Monitor: Infrastructure Leasing & Financial Services – INR Bond Default and more

In this briefing:

1. ­­Asian Credit Monitor: Infrastructure Leasing & Financial Services – INR Bond Default
2. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
3. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019
4. Real Estate – Theme of the Year
5. ICICI Bank Ex-Chief: No Crime Here, Only Bad Conduct?

1. ­­Asian Credit Monitor: Infrastructure Leasing & Financial Services – INR Bond Default

We chose to study Infrastructure Leasing & Financial Services Ltd (ILFS)’s default case. The company is engaged in infrastructure development and financing activities in India. Since the start of June 2018, the company has defaulted on a series of payments, resulting in rating downgrades. More recently, in January 2019, ILFS’ affiliated company Jharkhand Road Projects Implementation Company failed to pay INR760m due to its lenders. This resulted in CRISIL downgrading the bonds to D, which amounts to junk status. ILFS is one of the most important companies in the Indian infrastructure space and this default indicates signs of worry for investors.

2. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”

• US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
• Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
• A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
  That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
• The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
• Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.

CNBC Interview of David Riedel on US-China Trade

3. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019

• Poland: Could be a beneficiary of Brexit if Poles return to boost domestic demand. Unemployment of 5.5% provides room for workers.
• Brazil: Congress returning to discuss market-friendly policies from Bolsonaro – Pensions are top of list for reform
• Malaysia: Extremely dependent on external trade Malaysia has done well recently but may face headwinds if global growth slows.

4. Real Estate – Theme of the Year

The budget 2019 was indeed a tax-payers budget in which the main focus, of course, was on the lower and middle-class consumers. Out of all the tax proposals, the limelight was on the keen real estate sector in which there were substantial amendments made which in turn will act as a Santa to troubled Real Estate sector especially for the companies who are into the business of construction of affordable housing and low to mid-income housing.

5. ICICI Bank Ex-Chief: No Crime Here, Only Bad Conduct?

The press statement issued by ICICI Bank based on the enquiry report headed by Justice (Retd.) Srikrishna to investigate the allegations against Chanda Kochhar appears deliberately confusing and convoluted. While it states that Chanda Kochhar was in violation of the bank’s Code of Conduct, on the more serious charge of whether her conduct violated Indian laws, it is surprisingly vague. The media highlighted  the anomaly that the ICICI Bank board first absolved Kochhar, and the same board now found her guilty of violating its internal code of conduct. Media outlets portrayed the punishment sought by ICICI Bank against its former CEO (demanding a ‘claw back’ of all the bonuses and stock options given to her during her tenure as CEO) as stringent.

Although, in monetary terms, the penalty may be substantial, it is insignificant when compared with jail time for a possible criminal offence. From the press statement of ICICI Bank, it would appear that the Srikrishna report falls far short of the First Information Report (FIR) filed by the Central Bureau of Investigation (CBI); the latter charged her with the “suspected offence of criminal conspiracy, cheating, public servant taking illegal gratification/undue advantage, criminal misconduct of public servant and abuse of official position by public servant.”