IIHL bond issue: Potential investors in IIHL’s bond issue reassess risk

Mumbai: Investors planning to invest in IndusInd International Holdings’ proposed ₹4,300 crore bonds are reassessing risks emanating from accounting lapses disclosed by the Hinduja Group-promoted IndusInd Bank, people familiar with the matter said. The proceeds of the fundraising were to finance the acquisition of Reliance Capital under an in-court resolution process.

Hinduja Group-led IndusInd International Holdings (IIHL) mandated Barclays and 360 One to syndicate the debt, people cited above said. The bank on Monday disclosed accounting discrepancies in its derivative transactions affecting 2.35% of its net worth, raising alarm among potential investors.

“The fundraising, which was scheduled on Thursday, is now postponed to next week as some investors have sought more time to reassess IIHL’s credit risk before proceeding,” one of the sources said, requesting anonymity. Investors including Bank of America, Allianz Private Credit Fund, ICICI Prudential AMC Private Credit, Aditya Birla Finance, and Varde Partners have been looking at investing in the second tranche of the issue, as reported earlier.

In an emailed response to ET, an IIHL spokesperson said that the story is baseless and this part of the funding is irrevocably underwritten by Barclays and 360 One, and investors too are in place and the documentation is complete. “The transaction is on track as planned by investors. There is no scope for any further due diligence to be undertaken by any lender or investor,” he added.

IIHL said that the procedural documentation and filings for the last leg of the transaction for the remaining ₹4,500 crore is under process and due to the upcoming banking holidays, both in Mauritius and India, an extension for seven days was considered appropriate by all parties.

The National Company Law Tribunal (NCLT) Mumbai on Wednesday directed IIHL to close the acquisition of Reliance Capital by March 20 and listed the matter for further hearing on March 25. In an interview to ET Now, Ashok Hinduja said that more than ₹5,600 crore is credited to the committee of creditors’ accounts. The group is financing the ₹9,650 crore acquisition of Anil Ambani-owned Reliance Capital with ₹7,300 crore in debt and the rest as equity.In September, IIHL’s subsidiary, Cyqure India, raised ₹3,000 crore through non-convertible debentures at a 14.50% coupon. The remaining ₹4,300 crore was to be raised this week, people cited above said.Market experts are now raising questions about IIHL’s governance, particularly after the chief financial officer’s recent resignation in January and the Reserve Bank of India granting just a year’s extension to CEO Sumant Kathpalia against the board recommendation of three years. The RBI’s scrutiny and concerns over accounting practices have added to the uncertainty, one investor said.

“Issues like this in our view create questions on the robustness of the bank’s internal process and compliance,” said Suresh Ganapathy, head of financial services research at Macquarie Capital. “We believe this could be one of the reasons for a sub-optimal CEO tenor extension. Management highlighted that the 1-year tenor extension could be possible due to low confidence on leadership skills by RBI.”

During a call with analysts, the management said that the bank had been using its internal desk to hedge certain categories of foreign currency borrowings and deposits, rather than trading directly with external counterparties – for the past 5-7 years. However, following a new RBI circular on investments issued in September 2023 (effective from April 1, 2024), the bank discovered that these trades had not been properly validated, resulting in discrepancies. These issues relate to transactions executed before April 1, 2024.