Standard & Poor’s (S&P) today retained its negative credit watch on the overseas bonds issued by ICICI Bank and HDFC Bank through their Bahrain branches citing the downgrade of the Gulf nation.
Further, the global ratings agency has also warned that the lenders have to put in place alternative payment structures.
Country’s largest private sector lender ICICI Bank has sold bonds times through its Bahrain branch in the past — 600 million Chinese yuan bonds due in 2017 at 4 per cent coupon, 150 million Australian dollars at 6.125 per cent coupon due in 2019 and USD 340 million at 7.25 per cent coupon.
HDFC Bank too has sold yuan-denominated senior unsecured bonds worth 150 million at 4.30 per cent coupon (due 2018), similar instrument worth USD 500 million at 3 per cent coupon due in 2018 and another USD 595 million at 3 per cent due in 2016.
While those in the yuan are placed in credit watch with negative developing implications, the other bonds from these lenders have BBB- rating with a negative watch, S&P said in separate notes issued from Singapore.
The agency said it had originally placed each of the ratings on these issues on credit watch on February 22, 2016, after it had lowered the long-term sovereign credit rating on Bahrain to ‘BB/stable/B’ from ‘BBB-/negative/A-3’.
The agency also noted that both the lenders are taking steps on all their issuances from the Arab kingdom so that those bonds are insulated from any rating actions on the host country.
However, it added that “the agency is studying the effectiveness of the alternative payment structures that the banks are proposing to avoid and mitigate the sovereign risk of Bahrain.” It further said that it is keen to “resolve the credit watch status within a few weeks, or, at the latest, in the next three months”.
“We may lower the ratings by multiple notches if, the new payment structure does not reduce the sovereign risk of the host country for these bondholders,” it said.
Both the lenders did not respond to emails seeking comments. PTI BEN NRB SOM .