InvestorQ : Can you tell me why Kesoram Industries is planning to issue junk bonds in the Indian market?
Sam Eswaran made post

Can you tell me why Kesoram Industries is planning to issue junk bonds in the Indian market?

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Moii Chavate answered.
3 months ago
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In a rare instance of what is perhaps happening for the first time to a cement company, Kesoram Industries of the Birla group plans to raise funds to the tune of Rs.1,604 crore. What is really surprising about this fund raising is that it will be done through the issue of rupee-denominated junk bonds maturing in Feb-2026. These bonds have an escalating coupon clause with yields going as high as 21%. The bonds are rated ā€œDā€ by CRISIL.

The reason the bonds are rated in the default category by CRISIL is because Kesoram Industries has already defaulted on debt. Currently, it has debt to the tune of Rs.4600 crore in its books and does not have the cash flows to service that kind of debt. It is in fact getting into a slightly risky play where it would be using funds raised at an extremely cost of around 21% to repay loans to its creditors.

The problems at Kesoram arose due to the intense competition in the cement sector which has only worsened its financial position and negatively impacted its solvency. The proceeds from the issue of these junk bonds will be used to partially repay existing loans and other overdue liabilities. The company has defaulted on Rs.4,600 crore worth of debt as of Dec-20, despite being a blue chip at one time. Kesoram is more than 100 years old and part of the Birla group.

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