Lombard fund doubles down on India’s junk credit

The Swiss investment firm’s Asia Value Bond Fund has returned 9.7% so far this year. — Bloomberg

MUMBAI: Lombard Odier Investment Managers will expand exposure to Indian high-yield US dollar credit in its US$2bil Asian bond strategy, after the sector helped the product become a top performer by beating 96% of its peers this year.

The Swiss investment firm’s Asia Value Bond Fund has returned 9.7% so far this year, Bloomberg-compiled data show.

US dollar notes issued by major Indian companies such as Vedanta Ltd accounted for a record 19% of the bond strategy’s holdings this month, according to Dhiraj Bajaj, chief investment officer of Asia fixed income and equities at Lombard Odier.

“It’s a big single country exposure,” said Bajaj. “We intend to add to India high-yield and we do best in sizing up new maiden entrants to the high-yield market.”

India’s growing level of capital market sophistication, its proactive central bank, and strong legislation make junk debt raised by the country’s quality firms one of the most attractive assets across emerging markets, he said.

The prospect of fast economic and income growth, as well as an expanding domestic savings also are tailwinds, he added.

The nation’s star economy and improving business environment, at a time of slowing growth in China, has made Indian assets such as its booming stocks investor darlings in recent years.

The country’s high-yield US dollar debt borrowers also enjoyed an issuance boom earlier this year, partly thanks to stronger investor confidence induced by India’s entry into a major global sovereign bond index.

While the financial woes of Adani Group and Vedanta in recent years and Prime Minister Narendra Modi’s latest electoral upset have triggered concerns about long-term risks, Bajaj said he sees opportunities in such brief setbacks.

“We like special situations where companies are recovering from a liquidity strain,” said Bajaj. He named mining firm Vedanta Resources Ltd as an example, which according to Bloomberg-compiled data, accounts for nearly 5% of his bond fund’s net asset value. — Bloomberg