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Hedge funds bullish as banks' premium double peers

Bloomberg/ 07 Dec 12 | 12:40 AM

Indian bank debt offering almost double the yield premium of global lenders is attracting hedge funds impressed by Prime Minister Manmohan Singh's reaction to the threat of a junk credit rating.

Finisterre Capital LLP is betting on a decline in bond risk for State Bank of India Ltd and Bank of India Ltd, while Observatory Capital Management LLP bought dollar-denominated notes of ICICI Bank Ltd. The nation's corporate debt yields 353 basis points more than Treasuries, according to a JPMorgan Chase & Co index of 55 issuers, including 39 lenders. The spread on global banks is 181, a Bank of America Corp index shows.

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"Come January, investors will realise the relative attractiveness of Indian banks," Rahul Sharma, a London-based fund manager at Finisterre, which manages $1.6 billion of emerging-market assets, said on Tuesday. "There aren't a lot of Asian senior bank bonds trading at this spread in the investment-grade territory."

Singh has stepped up efforts since mid-September to improve government finances and boost economic growth from the slowest pace since 2009. He has cut subsidies, sold assets and allowed foreign investment in aviation and retailing. The measures came after Standard & Poor's and Fitch Ratings lowered their rating outlook, putting India at risk of becoming the first BRIC nation to lose its investment-grade ranking.

Sensex

Company Price Gain (%)
Hindalco Inds.182.052.36
St Bk of India2,523.602.26
HDFC Bank846.601.80
Infosys3,601.251.65
TCS2,461.651.22

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