Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies. BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 16 to 18. Analyst Certification on page 12. Valuation & Risk on page 9. 12639559 Asia Pacific Credit Update India HY: YTD performance recap & recommendations update Rating Change - Credit YTD performance recap ICE BofA India HY index (EINH) has posted YTD total return of 11.0% (as of 28 Dec’23), outperforming EM HY total return of 9.4% and Asia HY total return of 1.3%. On a yield-to-worst (YTW) basis, India HY index has tightened by about 140bps YTD (as of 28 Dec’23) and is currently trading at YTW of c. 9.4%. Sector outlook: renewables positive, commodities mixed The renewables sector is likely to see improving credit profile supported by improving receivables in 2024. This should be more positive for the restricted group (RG) issuers while Holdco capex remaining high will limit credit profile upside on a consolidated level. For steel companies, global macro uncertainty and high premium for domestic HRC prices in India vs landed cost of imports from China remains the key challenge though we believe Indian steelmakers have the headroom to withstand any such steel price volatility. Outside steel, we think Vedanta will likely continue to be event-driven in the near term given ongoing liability management exercise. Lastly, for non-banking financial (NBFC) sector, we see limited impact on Shriram Finance despite recent regulatory tightening. Supply technicals expected to remain supportive Over the course of 2023, c. USD 3.9bn of India HY corporate bonds have been redeemed (USD 3.1bn on maturity & USD 0.8bn through calls, tender offer, and amortizations) compared to USD 835mn of supply YTD 2023. Looking ahead, we estimate USD 5.7bn and 3.9bn of maturities in 2024 and 2025 respectively. Vedanta accounts for USD 2bn/1.2bn in 2024/2025 of maturities (one-third of cumulative maturity over 2024-25). Outside Vedanta, the renewables sector has about USD 2bn of bonds with USD 1.25bn backed by operating Restricted Group (RG) and USD 750mn of Holdco bond (from Adani Group). We believe good onshore funding access (especially for operating renewable structure) would keep the supply risk low. Even for the holdco renewable 2024 maturity, Adani Group has announced alternate refinancing plan. Overall, we see...
