New Issue Review : Tata Communications 3Y SGD 4.625%

Feels like a Hit and Run !

For a company (market cap USD 1.2 bio about 2.5 times less than its 2009 market cap) that has not tapped the market since 2009, they chose Singapore to launch their first issue and gave investors less than 4 hours to decide (hearing books closed at noon).

You decide if that is a good or bad thing ? I say its irresponsible and tactics of used car salesmen.


1. Retail customers do not read income statements to realise this company has been running losses since 2010 and has negative free cashflow.

2. Indian government owns 26.1% of the company and used to own 100% before selling part of their stake to Tata Sons in 2008 and it stopped making money since.

3. There is a Change of Control clause for Tata majority ownership meaning that bondholders can put the bonds back on the event Tata group loses control.

4. In this new world order, we are incline to believe that the Tata Group is TOO BIG TO FAIL.

My banker asked me what I thought of the bond ? The name or the price ?

My answer is the price.

The Indian government is rated Baa2/BBB- which makes it Aaa/AAA with its local rating agencies. Tata Group is Aaa locally which makes it Baa2/BBB- internationally as well. Tata Power, another loss making company, is B2/BB- (Moodys/S&P).

Best case scenario for Tata Communications would be somewhere in between Baa2/BBB- and B2/BB- given its government linked status. And investment grades end at BBB-, which makes it non investment grade and in the high yield category.

I cannot accept that the bankers are selling Indian Oil, IDBI and ICICI as comparables to this name ! A change of control clause is NOT A GUARANTEE.

A fair price for this bond would be on the other side of 5%, and I understand there is no leverage available.

Still the books are well oversubscribed and this bond has the NRI (non resident Indian) appeal and we all know banks are paying out bonuses now.