Non-banking financial company Indiabulls Housing Finance is offering to buy back its cheapened bonds after an ongoing fraud probe and a prolonged credit squeeze helped push yields as high as 43 per cent last year.

Indiabulls will repurchase anything trading at a yield of more than 12 per cent and has already spent $210 million to buy its local debt in December, said Chief Executive Officer Gagan Banga. The lender has consistently denied allegations of wrongdoing and Banga said the deals aim to correct pricing in an opaque and shallow market.

“Unless the bond markets fully mature, I don’t know the way out,” said Banga. “That’s what we can do to send a strong message, normalise the market.”

Shares slump

Indiabulls’ bonds and shares have slumped since September 2018, when the collapse of an infrastructure financier triggered a squeeze that is still denying cash to all but the strongest shadow lenders. Authorities are investigating Indiabulls for improper lending and last year rejected its plan to merge with a bank, blocking a path that would have helped both firms raise funds and strengthen buffers.

Policy makers have long tried to deepen the debt market, and further steps are expected in the Budget on Saturday. While there are more than 23,000 outstanding corporate bonds in India, only 350 trades were reported on average each day in 2019 through September, data from the Securities and Exchange Board of India show.

Indiabulls lost its top credit rating in the final few months of 2019 due to the funding squeeze and failure to get regulatory approval for its proposed merger with Lakshmi Vilas Bank. The Delhi High Court, on February 28, will hear a petition to probe Indiabulls on allegations that the company gave dubious loans worth billions of rupees to shell companies through firms owned by the group’s founders to increase their personal wealth. A separate petitioner withdrew a similar case against Indiabulls in November.

A freak trade

Indiabulls’ rupee bond due 2021 traded at a 27.5 per cent yield on January 22, only to fall back to 15 per cent two days later. The lender said it was a freak trade that pushed the yield to 43.04 per cent in October; Bajaj Allianz Life Insurance Co ended not delivering the debt to Deutsche Bank, people familiar with the matter had said at the time.

“It is buybackable if it’s anything above 12 per cent,” said Banga. “I understand my liquidity position better than anyone else. It is the best utilisation of capital. Why will I not do it”?

A company presentation shows Indiabulls held ₹1.1-lakh crore worth of assets as of September 30; 19.3 per cent of this in the form of liquid instruments, almost four times more than the average of the top five shadow lenders in India.

On Wednesday, Indiabulls offered to prematurely redeem its bonds maturing in February.

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