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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.

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Speaker 1: This week, we're very excited to welcome Chris Sheldon, co

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Speaker 1: head of Credit and Markets at KKR. How are you, Chris,

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Speaker 1: I'm doing well.

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Speaker 2: Thanks for having me.

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Speaker 1: Thank you so much for joining us today. I'm very

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Speaker 1: keen to get your thoughts on the markets, in particular

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Speaker 1: the outlook for next year. We're also delighted to welcome

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Speaker 1: back Lisa Lee, who covers credit markets from London. Great

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Speaker 1: to see you again.

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Speaker 3: Lisa, Thanks for having me again, James.

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Speaker 1: Also on today's show, we're going to be talking to

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Speaker 1: Sharon Chen, who covers Indian utilities, including a Danny for

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Speaker 1: Bloomberg Intelligence in Singapore. There's a lot going on, so

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Speaker 1: please do stay with us. But first Chris Sheldon at KKR.

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Speaker 1: Great to have you on the Credit Edge. We read

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Speaker 1: your twenty twenty four outlook. There's a lot of great

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Speaker 1: ideas and there. Thank you very much for sharing it,

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Speaker 1: and we appreciate the reference to Samuel Beckett too, one

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Speaker 1: of the all time greats. One thing though that stood

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Speaker 1: out for me. Rates have surged that means companies have

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Speaker 1: to pay a lot more to borrow and roll over

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Speaker 1: their debt. At the same time earnings are slowing. The

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Speaker 1: economy is going to slow down, some of these borrows

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Speaker 1: are not going to be able to keep up. That

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Speaker 1: means more distress, defaults, bankruptcies, more trouble generally ahead for

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Speaker 1: credit markets. And yet you sound very optimistic. So what

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Speaker 1: are we missing? Chris?

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Speaker 2: Yeah, I mean, I think you're right. Everything you said

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Speaker 2: is correct. We are seeing a big part of the

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Speaker 2: market seeing increase rates. We're seeing interest coverage ratios get less,

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Speaker 2: and some companies feeling the squeeze of where the risk

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Speaker 2: free rate and where SOFA is. With that said, we've

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Speaker 2: been talking about inflation for four years now, for almost

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Speaker 2: four years since COVID, and so everything that we've been

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Speaker 2: doing in our portfolio has been that's been the top

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Speaker 2: of mine at every investment committee we've had since COVID,

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Speaker 2: and really focusing on companies that can manage higher inflation costs,

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Speaker 2: labor supply chains, looking and stressing the cash flows. So

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Speaker 2: a lot of the deals that either we've originated over

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Speaker 2: the last few years or even how we've positioned in

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Speaker 2: the public markets that's been top of mind, and so

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Speaker 2: I think what you're going to see is you're definitely

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Speaker 2: going to see increased defaults. You're going to see increased

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Speaker 2: downgrades or increasing downgrades. But we don't think it's armageddon,

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Speaker 2: and we don't think it's going to be a massive spike.

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Speaker 2: And so as a result, what we're really saying is

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Speaker 2: we think this vintage is really nice. Right, banks have retreated,

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Speaker 2: you know, there's a need for capital, there's a lot

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Speaker 2: of dry powder and private equity. It's still a lenders

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Speaker 2: more market, and so this vintage is just gonna be

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Speaker 2: really nice. But there's gonna be a lot of viprecation,

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Speaker 2: and there's gonna be a lot of idiosyncratic things that happen,

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Speaker 2: and there's gonna be a lot of dispersion in the market.

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Speaker 2: So how I think about it is in the public markets,

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Speaker 2: it's about credit picking and more opportunistic and multi asse

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Speaker 2: class rather than buying the market. And in the private

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Speaker 2: credit markets it's it's a much more nuance. It's it's

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Speaker 2: bigger companies, it's certain sectors, it's not secular decliners. And

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Speaker 2: this vintage should be really nice.

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Speaker 1: So you mentioned that it is not armageddon. That's what

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Speaker 1: people were fearing coming into this year. But if you

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Speaker 1: bet against that view, you did really really well, and

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Speaker 1: things like triple C and leverage loans which really jumped

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Speaker 1: a lot. So it looks like credit really dodged a

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Speaker 1: bullet here. You know, if inflation is turning, if rates

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Speaker 1: are coming down, we're gonna be okay.

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Speaker 2: Yeah, we're gonna be okay. Look, there's gonna be I

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Speaker 2: sort mentioned it's gonna be dispersion. But if you think

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Speaker 2: about what's happened, you know over the last couple of years,

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Speaker 2: the first type of fear that we saw is fear

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Speaker 2: of unknown, of what the world's going to look like

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Speaker 2: and how the said was going to navigate this inflation right,

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Speaker 2: and not a lot of consensus, not a lot of

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Speaker 2: conviction in the market. And then as you fast forward

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Speaker 2: to where we are today, I think there's a little

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Speaker 2: bit more consensus and conviction that what the fet is

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Speaker 2: done is actually working and it's slowing the economy. But

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Speaker 2: this new fear is coming in, which is what you

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Speaker 2: have touched on initially, which is, oh my god, defaults

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Speaker 2: are going to increase, the market's slowing, is now the

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Speaker 2: time to come into credit because I don't want to

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Speaker 2: get in there right before all these defaults. But the

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Speaker 2: reality is that's the older vintage stuff, the newer vintage stuff.

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Speaker 2: You should be able to underwrite all that because you

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Speaker 2: know where you stand, so I you know it has

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Speaker 2: credit doized a bullet, Yeah, for sure, a lot of

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Speaker 2: credits are probably over sold and getting punished. You know.

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Speaker 2: The flip side is there's going to be a lot

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Speaker 2: of credits that have problems that get in squeeze by

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Speaker 2: their interest costs or can't recently answer their debt. And

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Speaker 2: I think that's where breath and depth being able to

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Speaker 2: underwrite these businesses and really picking the right ones. And

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Speaker 2: then you think about all the private equity drive, how

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Speaker 2: that hasn't been spent yet because it's been tough. M

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Speaker 2: and a bid asks uh and you know transactions are

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Speaker 2: why there that's going to come in and there's going

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Speaker 2: to be big aquity checks behind you, probably lower leverage,

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Speaker 2: better structures. That seems really interesting. Typeris reward, So I'm

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Speaker 2: not sure it's dodged the bullet, but there's a huge opportunity.

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Speaker 3: And when you talk about opportunities, do you think there

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Speaker 3: will be opportunities produced by the wall of maturity that

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Speaker 3: we are starting to see askin the higher bond and

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Speaker 3: the levised loan markets. And who's the opportunity there for

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Speaker 3: Do you think private a group, private credit will take

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Speaker 3: more deals away from this broadly syndicated market. How do

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Speaker 3: you see those three into play together?

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Speaker 2: Yeah, I mean I do. First, all of the three

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Speaker 2: need to coexists together. They can't. They can't. It's not

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Speaker 2: like one eating in each other's pocket or each each

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Speaker 2: eating each other's dinner. They will coexist and they should

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Speaker 2: co exist. That's a healthy market. But for sure, private

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Speaker 2: credit more and more has left the syndicated loan market

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Speaker 2: and has entered the private credit market. More and more

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Speaker 2: has left the syndicated market and gone into the high

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Speaker 2: old bomb market. And so if you look back right

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Speaker 2: private equity of the last decade, private equity has avoided

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Speaker 2: the high old bomb market like a plate. And the

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Speaker 2: reason why is it's got call protection, it's sec registered,

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Speaker 2: it requires a financial a lot more just restrictions against it.

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Speaker 2: And they've gone to a bilateral market that the COLO

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Speaker 2: market fueled and grew to one point where the syndicated

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Speaker 2: low market is larger than the high opop market. Now,

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Speaker 2: when you had the public market shots for the last

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Speaker 2: or you know, in periods of shuff the last eighteen months,

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Speaker 2: the private credit market has come in and I think

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Speaker 2: people are realizing. People meeting sponsors and borrows. Wow, it's great,

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Speaker 2: Like this is what lending was when I started my career.

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Speaker 2: It's relationship lending, speed of execution. If I need to

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Speaker 2: make an amendment, I have a partner there. And so

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Speaker 2: that is gaining share, which is great. It's really gatting

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Speaker 2: share from the banks that used to do it and

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Speaker 2: then to you at least your question on the maturities.

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Speaker 2: It's going to be an opportunity for all markets. So

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Speaker 2: if you look at the issuance in high yield and

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Speaker 2: twenty three a lot at secured issuance, So that's taking

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Speaker 2: care of some of the maturities. I think there's going

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Speaker 2: to be some abanding extents and there's going to be

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Speaker 2: some refiles that we've seen if that go from the

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Speaker 2: syndicative of a private credit market. I think the people

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Speaker 2: that will help problem with a maturity wall are businesses

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Speaker 2: that are struggling or secular declining, that are massively over

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Speaker 2: levered and either need equity to come in. It's not

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Speaker 2: not as easy as a straight REFI. But there there's

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Speaker 2: a lot of capital solutions, capital, subordinate data, subordinated death

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Speaker 2: that can come in to sort of kick the can

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Speaker 2: down the road. It doesn't necessarily mean it's going to

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Speaker 2: be a default. And as I look at that maturity wall,

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Speaker 2: I'm not as stressed as about that maturity wall as

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Speaker 2: what some of the things I read about, Wow, there's

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Speaker 2: a big maturity wall coming. There's going to be a

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Speaker 2: way with the force.

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Speaker 1: Are there any sectors to be worried about?

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Speaker 2: Look, I mean, I know I sort of touched on

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Speaker 2: a little things like secular decliners of you know, drick

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Speaker 2: and mortar, retail, you know, some things like goods. We've

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Speaker 2: seen a shift in the consumer going on experience over things.

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Speaker 2: You know, healthcare is one that you know, we've been

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Speaker 2: sort of underweight and avoiding a little bit just as

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Speaker 2: a result of they haven't been able to pass on

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Speaker 2: the inflationary costs, particular labor onto the customers or the consumers.

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Speaker 2: And so we're sort of concerned around those, you know,

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Speaker 2: cycle goals. It depends. You know, we're going through a

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Speaker 2: slowing so you have to be cautious on where we

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Speaker 2: are in the cycle there, but a lot of this

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Speaker 2: is more Idiot and company in addition to just the

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Speaker 2: sector of stuff and Chris.

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Speaker 3: When you look at US and Europe, where do you

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Speaker 3: see more opportunities, especially given that the economy is growing

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Speaker 3: a slightly different rate and just talk of maybe perhaps

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Speaker 3: a rate cut in Europe even earliest next year.

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Speaker 2: Yeah, I mean, I think we'll learn back and look

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Speaker 2: into history books about COVID, and I think Europe did

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Speaker 2: a lot of things well where they actually fueled a

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Speaker 2: lot of stimulus to the companies rather than the individuals,

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Speaker 2: which I think is helping them sort of manage the

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Speaker 2: current environment maybe a little bit better and managing these

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Speaker 2: inflation a little bit better. So we are optimistic on

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Speaker 2: Europe and are increasing our European exposure across many of

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Speaker 2: our strategies, particularly our liquid strategies. In addition, you're seeing

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Speaker 2: sort of you know, as we invest US dollar capital,

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Speaker 2: we're seeing some pick up on the currency, So you know,

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Speaker 2: those European capital structures on a risk reward relative value

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Speaker 2: look pretty attractive. With that said, though, the US market

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Speaker 2: is just that much bigger, it's that much more liquid

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Speaker 2: in our liquid strategies. So we're always going to be

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Speaker 2: overweight US over Europe in the broader, more diversified liquid strategies,

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Speaker 2: despite my comments that we're increasing some European exposure.

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Speaker 1: Let's talk about spreads. Chris on credit. You know, they've

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Speaker 1: been incredibly tight throughout the year. We've been through some

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Speaker 1: incredible situations. You know, we've seen a banking crisis, we've

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Speaker 1: seen all sorts of geopolitical stress, and we're coming into

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Speaker 1: an election year for the US. Do they remain this tight?

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Speaker 1: And if they do, are you getting compensate said properly

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Speaker 1: for the credit risk.

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Speaker 2: We've seen a big, big rally in in in spreads

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Speaker 2: just this this last month or this quarter to day,

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Speaker 2: particularly high yield spreads. You know, one of the things

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Speaker 2: that I've been sort of saying for a while is

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Speaker 2: the longer the capital markets are are shut, you're still

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Speaker 2: getting coup on, you're still getting amorization, you're still getting

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Speaker 2: cash back, which is creating a sort of id, like

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Speaker 2: to use analogy, this tinderbox situation that once there is

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Speaker 2: consensus and capital comes back in, there's nothing to buy.

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Speaker 2: There's not that net new product. And so I think

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Speaker 2: that's a little bit. What we've seen with regards to spreads,

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Speaker 2: even even quarter to the date with with some of

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Speaker 2: the rally is there's a little bit more clarity of

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Speaker 2: what's going on where the set is that in inflation

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Speaker 2: seems to be getting under control. Goods deflation's happening, and

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Speaker 2: so capital is coming in and they're all trying to

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Speaker 2: buy the same thing, and so I do think they'll

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Speaker 2: be a reset as new product comes into the market

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Speaker 2: to offset that, and that's what we kind of need

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Speaker 2: to get a healthy market going in M and A.

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Speaker 2: So we like new issue. We like things that seemed

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Speaker 2: to becoming at a premium because you're a forced seller

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Speaker 2: of assets rather than chasing sort of on the run

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Speaker 2: bonds that everyone else is going after. With regards to,

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Speaker 2: you know, the comment on spreads, I think a lot

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Speaker 2: of people spend too much time thinking about and talking

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Speaker 2: about spreads rather than looking at absolute yields in addition

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Speaker 2: to where the dollar prices and if you look at

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Speaker 2: core tiles or percentiles, or where spreads are across the

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Speaker 2: different markets relative to where the dollar price or the

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Speaker 2: absolute yields are over the last decade, dollar price in

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Speaker 2: yields is still really really attractive. And if you think

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Speaker 2: about it, if if you're sharing my view that you're

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Speaker 2: not going to have a massive spike of defaults and

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Speaker 2: huge losses. Getting you know, nine to ten percent cash

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Speaker 2: on cash or current income, you can hide a lot

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Speaker 2: of you know, defaults or mistakes as a result. So

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Speaker 2: from a risk adjusted basis, it looks pretty good right

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Speaker 2: now despite where where spreads are even at you know,

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Speaker 2: high held spreads today or sort of sub four hundred.

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Speaker 1: So it's not it's not mispriced the risk in the corpus.

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Speaker 2: I don't think it's mispriced. I do think you're seeing

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Speaker 2: some technicals that are probably driving it a little bit

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Speaker 2: tighter right now. But I do think, you know, if

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Speaker 2: I think about some of the conversations I've had with

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Speaker 2: allocators over the last decade, the first six months, a

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Speaker 2: lot of it was why would I invest in credit

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Speaker 2: when I can buy the risk free rate of five percent? Now?

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Speaker 2: A lot of the conversations are the FED seems to

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Speaker 2: be close to the bottom in terms of what they're

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Speaker 2: doing in raising rates, or seems to be closed it

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Speaker 2: seems to be working. When should I be putting on

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Speaker 2: And once that clarity happens and capital comes in. I mean,

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Speaker 2: look at what IG has done this quarter. We'll look

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Speaker 2: at what high yield's done. It's it's it's been one

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Speaker 2: of the best high yield quarters in history, or a

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Speaker 2: month of November in history. I think it was a

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Speaker 2: top twenty. So you gotta be you gotta be cognizant

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Speaker 2: of that technical and that supply and demand and balance.

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Speaker 1: But in that scenario, in scenario, and it's not just

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Speaker 1: public market, it's also private markets. Too much demand, not

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Speaker 1: enough supply, things do get mispriced, right, Yeah, sometimes.

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Speaker 2: I think that in the private markets it's a little

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Speaker 2: bit different. Right, You're seeing spreads tighten in the direct lending,

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Speaker 2: it's still relatively attractive all in the yield. I think

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Speaker 2: the difference there, and this is what Lisa sort of

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Speaker 2: touched on a little bit, is you're seeing a movement

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Speaker 2: from liquid to private credit. The size of the businesses

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Speaker 2: that we're financing right now and private credit is the

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Speaker 2: largest week ever had. This is like three hundred million

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Speaker 2: plus EVADAD, So we're probably over earning on the size

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Speaker 2: of the business. And I'd much rather finance a three

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Speaker 2: hundred million EVE without business than a fifty million without business.

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Speaker 2: So I think what you'll see as the market serves,

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Speaker 2: stabilizes and finds as equilibrium is we'll probably see in

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Speaker 2: the private credit markets spreads maybe even wid er, stabilized

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Speaker 2: where they are because the sides of the businesses become

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Speaker 2: more normalized to what middle market lending is, and where

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Speaker 2: we play is the upper end of the middle market.

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Speaker 2: So think about one hundred to two hundred million even

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Speaker 2: with Evadad, not three hundred million plus.

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Speaker 1: But you've been doing this a long time, Chris, your

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Speaker 1: firm has been in this a long time. What is

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Speaker 1: the risk that someone knew who's not quite as you know,

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Speaker 1: sophisticated as you are about these markets, comes in and

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Speaker 1: just totally misprices it totally, you know, just to get

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Speaker 1: to get some share.

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Speaker 2: Look that I think that's happening, and then it has happened.

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Speaker 2: But if you think about it, where that's going to

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Speaker 2: happen and where the new players are going to come

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Speaker 2: in and where they can have ball control, particularly in

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Speaker 2: the private grand markets are going to be on the

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Speaker 2: smaller end of the middle market. So you know, we're

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Speaker 2: seeing it be more of a food fight for that

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Speaker 2: ten to twenty five million evadout business than we are

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Speaker 2: for the three hundred million ibadat business. I mean, if

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Speaker 2: you just think about the quantum of the debt you

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Speaker 2: would need to raise to get you know, three hundred

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Speaker 2: million eve adout business on the leverage buyout. That's a

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Speaker 2: lot of capital. So who are they going to. They're

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Speaker 2: going to the large players that have like us and

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Speaker 2: others that have large capitals. So if Chris Sheldon capital,

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Speaker 2: we're going to come in. There's a new entrance which

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Speaker 2: is not going to happen. Just to be clear, Like

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Speaker 2: the like you need to raise a lot of money

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Speaker 2: to have ball control. And so we're seeing more of

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Speaker 2: a food fight on the smaller middle market area, which

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Speaker 2: in our view is just a lot riskier type risk.

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Speaker 3: So much of what drives AIO bonds for more levers,

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Speaker 3: loans and even now private credit is M and A

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Speaker 3: and LBO activity and there's they've really been muted. But Chris,

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Speaker 3: are you starting to hear from the PE guys and

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Speaker 3: from your capital market people that we're seeing more and

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Speaker 3: more and when when should we expect that to open

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Speaker 3: up more?

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Speaker 2: Yeah, we are starting to see that happen, and we're

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Speaker 2: starting to see pipelines build across our business, you know, globally,

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Speaker 2: whether it be our credit business or private equity business

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Speaker 2: and alike. And I think the so that will happen

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Speaker 2: you needed just you almost need a little bit of

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Speaker 2: equilibrium and rally and all the markets for it to

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Speaker 2: serve unleash and there is a little bit of a lag.

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Speaker 2: Look our North America private equity business has been really

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Speaker 2: busy in twenty three despite you know, slower M and

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Speaker 2: A and what you've seen and where they've been focused.

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Speaker 2: And I think the power of a of a big

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Speaker 2: breath and depth of a private equity from my KKR

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Speaker 2: is we've done a lot of public to privates, carve

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Speaker 2: outs out of public companies, non core assets where you're

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Speaker 2: not reliant on the leverage for the equity returns to

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Speaker 2: make sense. You're relying on you know, operational expertise to

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Speaker 2: come in rather than multiple expansion. And I think that's

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Speaker 2: where we've been focused on a private equity standpoint. I

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Speaker 2: think where where the private equity is going to be challenges,

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Speaker 2: the debts andands roll ups the private to private I

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Speaker 2: think you'll continue to see that type of transaction activity

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Speaker 2: a little bit slower and a little bit more muted.

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Speaker 2: Just as a result is that's more reliant on lower

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Speaker 2: cost of capital financing markets.

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Speaker 3: And for the lever's low market to really fully come

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Speaker 3: back and operate the way you used to and provide

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Speaker 3: debt financing and also for refinancing as well, the COLO

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Speaker 3: market has to really become more robust again. And that's

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Speaker 3: so dependent on triple A buyers. And you mentioned that

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Speaker 3: there might be more buyers coming along. Can you tell

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Speaker 3: us a little thoughts about your thoughts about COLO and

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Speaker 3: that creation.

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Speaker 2: Yeah, we are seeing we are seeing COLO creation, you know,

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Speaker 2: green shoots, theres coming back, and triple A buyers becoming

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Speaker 2: more interesting interested in atheca. Look, it's it's offering really

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Speaker 2: attractive all in yields, you know, for the for the

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Speaker 2: triple A investors, where spreads are and where the risk

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Speaker 2: free radio is. I think that a little bit of

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Speaker 2: the fear that I mentioned before about a way of

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Speaker 2: a defaults coming in and you know, should I be

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Speaker 2: leaning in is a reason a big part of the

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Speaker 2: reason where I think some of the COLO markets installed

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Speaker 2: or the creation installed. And I think as we get

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Speaker 2: more clarity that we're closer to the bottom and particularly

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Speaker 2: new issuance. Like my vintage comment, you can do new coos.

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Speaker 2: You can pick these credits. You're not dealing with a

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Speaker 2: lot of older vintage secular decliners or healthcare, the team,

359
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Speaker 2: labor inflation. You can create really healthy portfolios where I

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Speaker 2: think it's people are realizing that, and we're starting to

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Speaker 2: see the buyers come back. And then look and a

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Speaker 2: big buyers of triple a's are also the banks, and

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Speaker 2: you've seen obviously a rally and investment grade, and so

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Speaker 2: I think you'll see a rotation of some of the

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Speaker 2: current exposure to to free up capacity in order to

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Speaker 2: to you know, invest in triple a's. You know, right

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Speaker 2: now a big, a big issue for some of the

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Speaker 2: banks has been they haven't been able to or insurance

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Speaker 2: companies that they haven't been able to play as much

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Speaker 2: offense because what they would need to sell to create

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Speaker 2: liquidity for offense would been that realize losses and obviously

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Speaker 2: realize losses is super painful for level balance sheets.

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Speaker 1: So when you look around, Chris, everything you look at

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Speaker 1: and twenty twenty four is being a good year, what

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Speaker 1: are you most excited about? What asset class is the

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Speaker 1: one to look at?

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Speaker 2: Yeah, I'd say there's two areas that I get really

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Speaker 2: excited about. And I'm excited about credit in generals. You

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Speaker 2: can tell look in the liquid markets, I think it's

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Speaker 2: more there's going to be more and more dispersion, right

381
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Speaker 2: the companies are going underperform. The technicals in the market

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Speaker 2: are set up to create a little bit you know,

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Speaker 2: sell sell the things that are underperforming quickly, and so

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Speaker 2: I think having a more opportunistic way of credit, picking

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Speaker 2: a little bit more concentrate convicted portfolio, I think that's

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Speaker 2: you know, multi asset class credit, that's the way to win.

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Speaker 2: I think in the liquid markets. What I'm getting really

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Speaker 2: excited about in the private credit markets is all the

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Speaker 2: non corporate private credit stuff, the asset based finance type

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Speaker 2: transactions that we're seeing really about coming out of banks

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Speaker 2: as they're struggling to find deposits, as they're trying to

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Speaker 2: maximize their capital. We're seeing a lot of capital elie trades.

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Speaker 2: We're seeing really high quality portfolios that are for sale

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Speaker 2: that would have never been for sale before. In addition,

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Speaker 2: we're seeing them exit businesses where they were lenders, so

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Speaker 2: you can step in and be a lender against an

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Speaker 2: asset class and gain share that you would have never

398
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Speaker 2: had the opportunity before. So our activity and our asset

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Speaker 2: based finance business is probably the highest from a deal

400
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Speaker 2: flow and activity basis. So we're really excited about that opportunity.

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Speaker 1: Is there anything ective for that when you look at

402
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Speaker 1: asset based.

403
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Speaker 2: Yeah, there's a number of different things that we're seeing.

404
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Speaker 2: Stuff in mortgages, as and aircraft. You know, we're seeing

405
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Speaker 2: a bunch of stuff around consumer, but we're very focused

406
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Speaker 2: on the high quality prime super prime consumer, not the

407
00:23:01,720 --> 00:23:04,359
Speaker 2: subprime because that's where we're seeing a little bit of pain.

408
00:23:05,200 --> 00:23:07,480
Speaker 2: And then in addition, you're getting the structures you will

409
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Speaker 2: you want there to sort of protect yourself. So you know,

410
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Speaker 2: that's been a lot of areas what we've been focused on.

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Speaker 1: So if you have to pick one thing, then asset

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Speaker 1: based finance would be the big thing for twenty twenty four. Yeah.

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Speaker 2: And it's also not correlated or less correlated to what

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Speaker 2: you're seeing in the global economy. So as I think about,

415
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Speaker 2: you know, our partners that we're partnering with, it's a

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Speaker 2: it's a great compliment to their existing corporate portfolio, a

417
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Speaker 2: little bit incremental return, less correlation. It fits nice in

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Speaker 2: the product for their portfolio.

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Speaker 1: And when you just go back to where we started

420
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Speaker 1: and talk about risk, when you say it's not aged on,

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Speaker 1: is that basically just implying defaultse return to a kind

422
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Speaker 1: of a ten year average type, you know, around four

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Speaker 1: percent or something for junk.

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Speaker 2: Yeah, you might have a little bit higher. I mean,

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Speaker 2: I think you're what you're going to see is the

426
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Speaker 2: fault public spike up a little bit, But it's not

427
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Speaker 2: more like a broad base, it's more a aosyncratic I

428
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Speaker 2: do think that recoveries in the higho market could be

429
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Speaker 2: a little bit higher if you look at what we've

430
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Speaker 2: seen historically. The high market's the highest quality higher market

431
00:24:16,560 --> 00:24:19,840
Speaker 2: we've seen, you know, fifty plus percent. Double B goes

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00:24:19,880 --> 00:24:23,280
Speaker 2: back to my point where private we avoided the highe market,

433
00:24:23,400 --> 00:24:26,200
Speaker 2: so he went to the loan market. On the flip side,

434
00:24:26,840 --> 00:24:30,000
Speaker 2: you know, the loan market probably has lower the recoveries

435
00:24:30,040 --> 00:24:33,560
Speaker 2: than historical just because of a little bit increased leverage.

436
00:24:33,800 --> 00:24:37,120
Speaker 2: So if you look across our fifteen hundred plus issuers

437
00:24:37,160 --> 00:24:42,480
Speaker 2: across our liquid book globally, our debt to EBITDA on

438
00:24:42,600 --> 00:24:46,440
Speaker 2: our secured leverage loan book is higher than our unsecured

439
00:24:46,760 --> 00:24:50,280
Speaker 2: high Yo Bomb book, which gives illustrates a little bit

440
00:24:50,280 --> 00:24:52,760
Speaker 2: of that. And you're starting to see that in the

441
00:24:52,840 --> 00:24:57,200
Speaker 2: upgrade down grades, right Hiyod's actually seeing a decent amount

442
00:24:57,200 --> 00:25:01,800
Speaker 2: of upgrades and the low markets is more trending more

443
00:25:01,840 --> 00:25:02,840
Speaker 2: downgrades than upgrades.

444
00:25:03,440 --> 00:25:06,000
Speaker 1: Twenty twenty four will be the best year since when.

445
00:25:06,720 --> 00:25:10,040
Speaker 2: Look, I mean, I'm not saying it's gonna be the

446
00:25:10,040 --> 00:25:12,400
Speaker 2: best year. I guess what I'm saying is, if you're

447
00:25:12,440 --> 00:25:16,760
Speaker 2: an allocator, let's get started, let's get invested. It's not

448
00:25:16,920 --> 00:25:19,960
Speaker 2: the fear out there that everyone talks to, you know.

449
00:25:20,520 --> 00:25:23,440
Speaker 2: The fears that I'm seeing is corporate debt levels have

450
00:25:24,720 --> 00:25:28,840
Speaker 2: I've doubled, you know, since the GFC rates are super high,

451
00:25:28,920 --> 00:25:32,560
Speaker 2: so borring costs as a results are super high, which

452
00:25:32,560 --> 00:25:36,640
Speaker 2: means there's pressure on interest coverage ratios. The LBO math

453
00:25:36,720 --> 00:25:41,880
Speaker 2: doesn't work anymore, and so you know, buyouts just don't work,

454
00:25:41,960 --> 00:25:45,199
Speaker 2: and as a result, there's gonna be This is a

455
00:25:45,200 --> 00:25:48,200
Speaker 2: bad advantage, I guess, you know. And I'm also hearing

456
00:25:48,440 --> 00:25:51,040
Speaker 2: there's been too much private credit capital. It's been raised,

457
00:25:51,080 --> 00:25:52,879
Speaker 2: and so as a result, there's a bubble there. I

458
00:25:52,920 --> 00:25:56,159
Speaker 2: guess what I'm saying is I don't agree with a

459
00:25:56,200 --> 00:25:58,760
Speaker 2: lot of that. There's parts of it that I may

460
00:25:58,840 --> 00:26:02,000
Speaker 2: agree with it, and pocket what I'm saying is let's

461
00:26:02,000 --> 00:26:04,400
Speaker 2: get started, let's get invested, because if you wait too

462
00:26:04,440 --> 00:26:08,640
Speaker 2: long and Claire comes into the market, that capital's gonna

463
00:26:08,680 --> 00:26:11,040
Speaker 2: flood in and it's gonna be too late. And I

464
00:26:11,080 --> 00:26:13,359
Speaker 2: think what we learned from the GFP is if you

465
00:26:14,040 --> 00:26:16,080
Speaker 2: worry too much about the fears and don't see the

466
00:26:16,119 --> 00:26:19,439
Speaker 2: opportunities in front of you, you know you're gonna miss it.

467
00:26:20,119 --> 00:26:22,280
Speaker 1: Don't get paralyzed by fear. As you're saying the report,

468
00:26:22,880 --> 00:26:25,800
Speaker 1: great stuff. Chris Sheldon, co head of Credit and Markets

469
00:26:25,800 --> 00:26:27,720
Speaker 1: at KKRS, thank you so much for joining us.

470
00:26:28,000 --> 00:26:29,240
Speaker 2: Great thank you and.

471
00:26:29,160 --> 00:26:31,080
Speaker 1: Lisa Lee with Bloomberg News in London. But to see

472
00:26:31,119 --> 00:26:32,080
Speaker 1: you again, thank you so much.

473
00:26:32,240 --> 00:26:33,639
Speaker 3: Cheers, thank you for having me.

474
00:26:34,760 --> 00:26:36,959
Speaker 1: As I mentioned earlier, we're delighted to welcome back to

475
00:26:37,000 --> 00:26:40,280
Speaker 1: the Credit Edge. Sharon Chen from Bloomberg Intelligence in Singapore.

476
00:26:40,480 --> 00:26:41,200
Speaker 1: How are you, Sharon?

477
00:26:42,160 --> 00:26:42,560
Speaker 4: And good?

478
00:26:42,600 --> 00:26:42,959
Speaker 2: Thanks?

479
00:26:43,040 --> 00:26:43,960
Speaker 4: How are you, James?

480
00:26:44,240 --> 00:26:47,200
Speaker 1: Very good? Great to see you again. So you're based

481
00:26:47,240 --> 00:26:49,359
Speaker 1: in Singapore, but you cover a huge range of stuff

482
00:26:49,359 --> 00:26:53,040
Speaker 1: all across Asia. Let's talk about India. And in particular

483
00:26:53,160 --> 00:26:56,800
Speaker 1: renewable energy. Loads of things going on over there, But

484
00:26:57,000 --> 00:27:00,880
Speaker 1: what is the story, Sharon for dollar bond investors? Why

485
00:27:00,880 --> 00:27:02,440
Speaker 1: should they be paying attention right now?

486
00:27:03,480 --> 00:27:03,680
Speaker 2: Right?

487
00:27:04,080 --> 00:27:07,520
Speaker 4: So, we have about ten billion dollars worth of dollar

488
00:27:07,520 --> 00:27:11,200
Speaker 4: bonds outstanding from the Indian renewable sector. Now that sounds

489
00:27:11,240 --> 00:27:14,399
Speaker 4: like quite a small amount, but actually that represents close

490
00:27:14,440 --> 00:27:18,040
Speaker 4: to a third of outstanding bonds coming from India high yield.

491
00:27:18,480 --> 00:27:20,879
Speaker 4: As we all know. You know, there's been a lot

492
00:27:20,920 --> 00:27:23,840
Speaker 4: of news report about it becoming harder to invest in

493
00:27:23,920 --> 00:27:27,120
Speaker 4: China following what's going on with the property sector. So

494
00:27:27,440 --> 00:27:30,480
Speaker 4: you know, investors are focusing a lot more on other countries,

495
00:27:30,480 --> 00:27:33,600
Speaker 4: including India, and we did this. Indian renewable is definitely

496
00:27:33,600 --> 00:27:35,199
Speaker 4: one of the key sectors to pay attention to.

497
00:27:35,960 --> 00:27:39,320
Speaker 1: So there is a large investment in renewables in India.

498
00:27:39,560 --> 00:27:41,520
Speaker 1: What's the outlook for the sector? What are you looking

499
00:27:41,560 --> 00:27:43,200
Speaker 1: at in terms of growth there?

500
00:27:43,960 --> 00:27:47,199
Speaker 4: So it's definitely a growing sector and you know that

501
00:27:47,720 --> 00:27:51,200
Speaker 4: could be a good or bad thing for bond investors.

502
00:27:51,240 --> 00:27:54,040
Speaker 4: So the government is very much focused on the sector

503
00:27:54,080 --> 00:27:57,639
Speaker 4: because it's key to the government achieving five hundred giga

504
00:27:57,680 --> 00:28:01,040
Speaker 4: worts of non fossil fuel capacity by twenty third, and

505
00:28:01,280 --> 00:28:04,240
Speaker 4: they're increasing the tender to about fifty gigle wards of

506
00:28:04,280 --> 00:28:07,840
Speaker 4: renewable capacity annually compared to an average of fifteen gigle

507
00:28:07,880 --> 00:28:11,720
Speaker 4: words in prior years. So on you know, the negative

508
00:28:11,760 --> 00:28:14,199
Speaker 4: side for bond investors, you know, there is some concern

509
00:28:14,200 --> 00:28:17,120
Speaker 4: about leverage in the sector because of the rapid growth rate.

510
00:28:18,160 --> 00:28:20,320
Speaker 4: Having said that, I think the worst might be behind

511
00:28:20,400 --> 00:28:23,200
Speaker 4: us because we are seeing cash flows improve for most

512
00:28:23,240 --> 00:28:26,199
Speaker 4: of the leading players as the commission new capacity and

513
00:28:26,240 --> 00:28:31,520
Speaker 4: also their cash flows are improving from working capital inflows.

514
00:28:31,560 --> 00:28:34,200
Speaker 4: On the positive side, though, because this sector has become

515
00:28:34,280 --> 00:28:37,359
Speaker 4: so important for India, the government is very focused on

516
00:28:37,359 --> 00:28:39,920
Speaker 4: this sector and we have seen a lot of liquidity

517
00:28:40,160 --> 00:28:43,240
Speaker 4: coming into the sector. So you know, we're seeing policy

518
00:28:43,280 --> 00:28:45,360
Speaker 4: support and also funding support for the sector.

519
00:28:46,000 --> 00:28:48,320
Speaker 1: And it's a sector that requires a lot of capital investments.

520
00:28:48,360 --> 00:28:50,720
Speaker 1: So do we expect them to increase their dollar bond

521
00:28:50,800 --> 00:28:51,840
Speaker 1: issuance significantly?

522
00:28:53,160 --> 00:28:57,120
Speaker 4: So unfortunately, cost is an issue for the dollar bond market,

523
00:28:57,240 --> 00:28:59,520
Speaker 4: So we would love to obviously see more supply coming

524
00:28:59,520 --> 00:29:02,600
Speaker 4: to the dollar bond market from this sector. But as

525
00:29:02,600 --> 00:29:04,959
Speaker 4: I mentioned earlier, there is a lot of funding support

526
00:29:05,000 --> 00:29:08,440
Speaker 4: on shore for the renewable sector. So to give you

527
00:29:08,440 --> 00:29:10,880
Speaker 4: an example, I think some of the companies have been

528
00:29:10,920 --> 00:29:15,080
Speaker 4: saying they're able to raise long term project finance at

529
00:29:15,120 --> 00:29:18,280
Speaker 4: about nine percent yield on shore, and I think this

530
00:29:18,360 --> 00:29:21,520
Speaker 4: could be about two hundred basis points cheaper than what

531
00:29:21,600 --> 00:29:23,760
Speaker 4: it would cost if they issued dollar bonds and then

532
00:29:24,040 --> 00:29:26,160
Speaker 4: you know, hedged it back into Rupees.

533
00:29:27,400 --> 00:29:29,400
Speaker 1: So like on shore, you mean they're actually doing in

534
00:29:29,440 --> 00:29:31,600
Speaker 1: the local currency, so they're not they're not going to

535
00:29:31,360 --> 00:29:34,440
Speaker 1: get a problem with the FS exposure as well, so

536
00:29:34,440 --> 00:29:36,000
Speaker 1: that's probably advantageous.

537
00:29:36,640 --> 00:29:39,200
Speaker 4: Yes, definitely. We're also seeing a lot of interest in

538
00:29:39,200 --> 00:29:43,600
Speaker 4: this sector from you know, multilateral organizations. So for example,

539
00:29:44,000 --> 00:29:48,120
Speaker 4: renew Energy, one of the leading players, just signed a

540
00:29:48,160 --> 00:29:53,200
Speaker 4: memorism of understanding with Asian Development Bank. So there's definitely

541
00:29:53,280 --> 00:29:54,840
Speaker 4: a lot of interest in this sector.

542
00:29:55,520 --> 00:29:58,360
Speaker 1: One of the companies that has been in the news

543
00:29:58,440 --> 00:30:02,720
Speaker 1: this year is Danny. It's a huge India based conglomerate

544
00:30:02,760 --> 00:30:06,400
Speaker 1: that includes everything from ports and airports to coal. They

545
00:30:06,400 --> 00:30:08,880
Speaker 1: also have a green energy division. How's that doing?

546
00:30:10,080 --> 00:30:13,520
Speaker 4: So, Actually, you know, we've come a long way from

547
00:30:13,520 --> 00:30:16,560
Speaker 4: when the Hindenburg research report first came out and there's

548
00:30:16,600 --> 00:30:19,280
Speaker 4: been a lot more positive news coming out on the

549
00:30:19,320 --> 00:30:23,840
Speaker 4: Adni group, so you know, as a refresher, when the

550
00:30:23,920 --> 00:30:27,400
Speaker 4: short Sellar report came out, obviously there were concerns around

551
00:30:27,400 --> 00:30:31,080
Speaker 4: corporate governmanceries and also concerns that that could spill over

552
00:30:31,240 --> 00:30:34,280
Speaker 4: to the company's well, the group's funding access, given that

553
00:30:34,640 --> 00:30:37,040
Speaker 4: they do spend a lot on capex and there's a

554
00:30:37,040 --> 00:30:40,120
Speaker 4: lot of refinancing risks. But we have seen some evidence

555
00:30:40,200 --> 00:30:43,280
Speaker 4: that the group is able to still tap funding. So

556
00:30:43,840 --> 00:30:48,000
Speaker 4: earlier this year Adani was able to refinance three point

557
00:30:48,080 --> 00:30:50,960
Speaker 4: five billion dollars worth of loans that they raised to

558
00:30:51,240 --> 00:30:55,160
Speaker 4: acquire Cement Company, and then more recently a Downy Green

559
00:30:55,640 --> 00:30:57,920
Speaker 4: has been able to raise three hundred million dollars from

560
00:30:57,960 --> 00:31:01,480
Speaker 4: total through an investment in a j and now they're

561
00:31:01,640 --> 00:31:05,440
Speaker 4: also getting one point four billion dollars worth of construction facilities.

562
00:31:05,800 --> 00:31:08,959
Speaker 4: So certainly I think the credit market is a bit

563
00:31:09,040 --> 00:31:12,960
Speaker 4: less concerned there, although their dollar bonds are still trading

564
00:31:13,520 --> 00:31:17,040
Speaker 4: very wide compared to similarly rated peers, which again I

565
00:31:17,040 --> 00:31:20,480
Speaker 4: think points to some still some lingering concerns about corporate governance.

566
00:31:21,680 --> 00:31:24,920
Speaker 1: And so for those who don't know a Danny. In January,

567
00:31:25,320 --> 00:31:28,040
Speaker 1: there was a report from US Investment firm and short

568
00:31:28,080 --> 00:31:33,800
Speaker 1: sellar Hindenburg research and alleging accounting fraud and the stop

569
00:31:33,800 --> 00:31:36,479
Speaker 1: manipulation at the group, and that really did hit the

570
00:31:36,800 --> 00:31:40,920
Speaker 1: prices of all Danny assets. Although we've seen a kind

571
00:31:40,920 --> 00:31:42,480
Speaker 1: of a relief rally over the last couple of days,

572
00:31:42,480 --> 00:31:45,800
Speaker 1: haven't we. It's been kind of a turnaround in terms

573
00:31:45,800 --> 00:31:48,280
Speaker 1: of their valuations. But you think the bonds are still lagging,

574
00:31:48,320 --> 00:31:49,680
Speaker 1: so maybe they're cheap.

575
00:31:51,080 --> 00:31:53,760
Speaker 4: So yes, one, I mean, I've been publishing research on

576
00:31:53,920 --> 00:31:56,520
Speaker 4: deer Danny bonds and I have said that, you know,

577
00:31:56,560 --> 00:31:59,560
Speaker 4: one of the key positive catalysts would be once they

578
00:31:59,560 --> 00:32:03,560
Speaker 4: get over a refinancing hump next year. So Donny Green Energy,

579
00:32:03,600 --> 00:32:06,960
Speaker 4: they're renewable firm, has one point twenty five billion dollars

580
00:32:06,960 --> 00:32:10,280
Speaker 4: worth of dollar bonds coming due next year, and you know,

581
00:32:10,280 --> 00:32:14,600
Speaker 4: obviously there's some concerns about refinancing risk there, especially for

582
00:32:14,680 --> 00:32:17,240
Speaker 4: seven hundred and fifty million dollars of bonds which is

583
00:32:17,240 --> 00:32:20,920
Speaker 4: issued of the holding company level and aren't isn't secured

584
00:32:21,080 --> 00:32:25,040
Speaker 4: by projects, so it could be harder to refinance that.

585
00:32:25,200 --> 00:32:28,080
Speaker 4: But Danny Green have said that they've lined up liquidity

586
00:32:28,080 --> 00:32:32,080
Speaker 4: at the sponsor level to cover these bonds and As

587
00:32:32,120 --> 00:32:34,560
Speaker 4: for the restricted group bonds, they're looking to refinance that

588
00:32:34,680 --> 00:32:37,800
Speaker 4: in the US private placement market. Just given what we've

589
00:32:37,840 --> 00:32:40,920
Speaker 4: seen in terms of the group's ability to raise funds,

590
00:32:40,960 --> 00:32:44,120
Speaker 4: my base case is they will be able to repay

591
00:32:44,160 --> 00:32:46,600
Speaker 4: these bonds and that could be a positive catalyst for

592
00:32:46,640 --> 00:32:47,800
Speaker 4: some of the other bonds.

593
00:32:48,120 --> 00:32:50,320
Speaker 1: You know, when we look at some companies and we

594
00:32:50,440 --> 00:32:55,160
Speaker 1: talk about governance issues and green bonds, we fear green washing.

595
00:32:55,520 --> 00:32:57,880
Speaker 1: How do we know that Danny's really using the proceeds

596
00:32:57,880 --> 00:33:01,120
Speaker 1: of these bonds to do environmentally positive things.

597
00:33:02,440 --> 00:33:05,640
Speaker 4: So, you know, a Donny Green Energy is a pure

598
00:33:05,680 --> 00:33:10,080
Speaker 4: renewable player, So any funds raised there and given especially

599
00:33:10,120 --> 00:33:12,440
Speaker 4: given how quickly they're growing and they do have large

600
00:33:12,480 --> 00:33:15,400
Speaker 4: that company has large funding needs. I do believe that,

601
00:33:15,680 --> 00:33:17,760
Speaker 4: you know, an investor in a Donny Green Energy, the

602
00:33:17,800 --> 00:33:21,520
Speaker 4: process should be used for renewable companies. I think where

603
00:33:21,560 --> 00:33:24,240
Speaker 4: it became a bit contentious for a Donny earlier on

604
00:33:25,080 --> 00:33:28,920
Speaker 4: was that at the sponsor level. I think there was

605
00:33:29,040 --> 00:33:33,600
Speaker 4: news report actually that the sponsor was using its shares

606
00:33:33,680 --> 00:33:37,760
Speaker 4: in a Donny Green as security for another loan that

607
00:33:37,920 --> 00:33:41,680
Speaker 4: was used to fund a coal project in Australia. So

608
00:33:42,040 --> 00:33:45,840
Speaker 4: that was quite contentious at that point. But you know,

609
00:33:46,120 --> 00:33:49,360
Speaker 4: the sponsor has unwound most of these pledges as far

610
00:33:49,400 --> 00:33:53,760
Speaker 4: as we understand. But again, it is somewhat of a

611
00:33:53,840 --> 00:33:56,760
Speaker 4: risk when you know you're investing in such a large

612
00:33:56,800 --> 00:33:59,680
Speaker 4: group with a variety of different businesses.

613
00:34:00,120 --> 00:34:01,240
Speaker 1: Yeah, I mean I was going to ask about that,

614
00:34:01,280 --> 00:34:03,040
Speaker 1: you know, because Cole is one of the dirtiest and

615
00:34:03,120 --> 00:34:06,160
Speaker 1: most polluting fuels out there, and on an ESG level,

616
00:34:06,160 --> 00:34:08,319
Speaker 1: if you're exposed to the Danny name, presumably you have

617
00:34:08,440 --> 00:34:13,000
Speaker 1: to kind of consider all of its other businesses. But

618
00:34:13,280 --> 00:34:18,239
Speaker 1: going back to the Hindenburg research, we're almost a year

619
00:34:18,280 --> 00:34:20,640
Speaker 1: on from that. Do you think the company is out

620
00:34:20,640 --> 00:34:22,839
Speaker 1: of the woods now? They you know, they, as we said,

621
00:34:22,880 --> 00:34:26,200
Speaker 1: the assets have rallied, these stock is up. But are

622
00:34:26,239 --> 00:34:26,839
Speaker 1: they in the clear.

623
00:34:27,920 --> 00:34:30,720
Speaker 4: It's hard for me to say exactly, you know, whether

624
00:34:30,800 --> 00:34:33,319
Speaker 4: or not they are in the clear, especially given we

625
00:34:33,440 --> 00:34:39,400
Speaker 4: haven't actually had the final conclusions from a regulatory investigation

626
00:34:39,560 --> 00:34:46,040
Speaker 4: into the Hindenburg allegations. So the SEBBI, which is the

627
00:34:46,160 --> 00:34:50,920
Speaker 4: Indian market regulator, has been conducting an investigation into a

628
00:34:51,000 --> 00:34:55,160
Speaker 4: dining group and the Hindenburg allegations, and they've reported their

629
00:34:55,160 --> 00:34:59,200
Speaker 4: findings to a Supreme Court panel, but the findings haven't

630
00:34:59,239 --> 00:35:02,000
Speaker 4: been made public yet. The other thing is just from

631
00:35:02,120 --> 00:35:06,880
Speaker 4: reading news report, is that apparently SABBI had issues getting

632
00:35:07,600 --> 00:35:13,280
Speaker 4: some information from offshore regulators because one of Hindenburg's allegations

633
00:35:13,480 --> 00:35:16,719
Speaker 4: is that, you know, the dining group might have been

634
00:35:16,800 --> 00:35:21,839
Speaker 4: using these offshore entities for stock price manipulation. But it's

635
00:35:21,920 --> 00:35:24,160
Speaker 4: proven quite difficult, I think, for the regulators to get

636
00:35:24,160 --> 00:35:26,239
Speaker 4: to the bottom of who are the beneficial owners for

637
00:35:26,360 --> 00:35:30,200
Speaker 4: some of these official funds. So it's hard to say

638
00:35:30,239 --> 00:35:34,080
Speaker 4: that it's completely behind us now, given that we just

639
00:35:34,120 --> 00:35:37,080
Speaker 4: don't have the details of the investigation to give them

640
00:35:37,200 --> 00:35:41,280
Speaker 4: all clear. But it does seem that from a funding perspective,

641
00:35:41,320 --> 00:35:46,000
Speaker 4: at least, you know, lenders are getting more comfortable extending

642
00:35:46,040 --> 00:35:46,959
Speaker 4: finance into the group.

643
00:35:47,360 --> 00:35:49,719
Speaker 1: Do we know when we'll get the results of the investigation.

644
00:35:50,640 --> 00:35:54,760
Speaker 4: I'm not entirely sure, but it should be soon. The

645
00:35:54,840 --> 00:35:58,240
Speaker 4: SEBBI has already presented the results to the Supreme Court panel.

646
00:35:58,840 --> 00:36:00,960
Speaker 4: It's just a case of you know when we're going

647
00:36:01,000 --> 00:36:02,880
Speaker 4: to get it publicly.

648
00:36:03,440 --> 00:36:05,160
Speaker 1: So just going back to where we started in terms

649
00:36:05,160 --> 00:36:08,239
Speaker 1: of like why a dollar investors should be interested in

650
00:36:08,239 --> 00:36:11,640
Speaker 1: this right now? What in your view is the best

651
00:36:11,840 --> 00:36:14,919
Speaker 1: or where is the best relative value for next year?

652
00:36:15,440 --> 00:36:18,480
Speaker 1: Sharing when you look across everything, you look at sure.

653
00:36:18,520 --> 00:36:21,160
Speaker 4: I mean I mentioned some of their downy bonds and

654
00:36:21,600 --> 00:36:24,959
Speaker 4: specifically within actually some of the triple B minus rated

655
00:36:24,960 --> 00:36:28,960
Speaker 4: A Donni bonds are trading it over eight percent yields,

656
00:36:29,000 --> 00:36:31,719
Speaker 4: which is wide of double B rated India bonds. So

657
00:36:32,040 --> 00:36:34,719
Speaker 4: you know, I still expect them to trade wide because

658
00:36:34,760 --> 00:36:37,680
Speaker 4: of governance risk. But as I mentioned earlier, there is

659
00:36:37,840 --> 00:36:42,360
Speaker 4: some positive catalysts other than that, I think the Indian

660
00:36:42,400 --> 00:36:45,520
Speaker 4: renewable sector actually has tightened a lot in line with

661
00:36:45,920 --> 00:36:48,239
Speaker 4: actually the rest of the market. Right We've seen a

662
00:36:48,320 --> 00:36:52,560
Speaker 4: very strong rally in November, and so one thing to

663
00:36:52,560 --> 00:36:55,759
Speaker 4: be cognizant of within the sector is that a lot

664
00:36:55,800 --> 00:36:59,759
Speaker 4: of the bonds have different structure, and so given there's

665
00:36:59,800 --> 00:37:05,600
Speaker 4: now less spread differentiation, you know, my uh, I think

666
00:37:05,680 --> 00:37:09,239
Speaker 4: relative value could be in more of the safer structures.

667
00:37:09,719 --> 00:37:13,440
Speaker 4: So for example, some of the renew powers or greencow

668
00:37:13,560 --> 00:37:18,000
Speaker 4: energies which do have project security, I think those are

669
00:37:18,040 --> 00:37:21,320
Speaker 4: the ones given that the US just aren't that different

670
00:37:21,600 --> 00:37:23,240
Speaker 4: different between the bonds.

671
00:37:23,800 --> 00:37:25,440
Speaker 1: And the point you mentioned at the beginning was very

672
00:37:25,480 --> 00:37:28,640
Speaker 1: interesting that the people aren't really that comfortable with China

673
00:37:28,680 --> 00:37:30,680
Speaker 1: at the moment, so maybe India is an alternative. Is

674
00:37:30,680 --> 00:37:33,800
Speaker 1: that something you think people rotating out of China credit

675
00:37:33,840 --> 00:37:35,440
Speaker 1: into India credit. Is that possible.

676
00:37:35,920 --> 00:37:37,600
Speaker 4: I think that's been going on for a while now.

677
00:37:37,640 --> 00:37:40,560
Speaker 4: And that's also why we've seen, you know, the India

678
00:37:40,600 --> 00:37:43,600
Speaker 4: bonds trading where they are, which is fairly tight other

679
00:37:43,680 --> 00:37:45,800
Speaker 4: than a dine perhaps.

680
00:37:45,480 --> 00:37:47,759
Speaker 1: So in terms of you know, just to wrap it

681
00:37:47,840 --> 00:37:52,480
Speaker 1: up things you're worried about, it's quite late there in Singapore,

682
00:37:52,480 --> 00:37:56,359
Speaker 1: but what keeps you up at night worrying about markets

683
00:37:56,040 --> 00:37:59,280
Speaker 1: for the next Year's what's your biggest concern?

684
00:38:00,120 --> 00:38:03,000
Speaker 4: Just isn't enough supply? And so the bonds are continue

685
00:38:03,040 --> 00:38:05,800
Speaker 4: to trade tight, and you know, whether we are investors

686
00:38:05,800 --> 00:38:09,200
Speaker 4: are really compensated for the risk that they're taking, and

687
00:38:09,280 --> 00:38:11,839
Speaker 4: so if interest rates stay high, I think that's going

688
00:38:11,920 --> 00:38:15,799
Speaker 4: to continue to be concerned. But in terms of the

689
00:38:15,800 --> 00:38:18,680
Speaker 4: India renewable sector, you know, how quickly they ramp up

690
00:38:18,680 --> 00:38:21,480
Speaker 4: cap PAX is definitely one thing I'm watching. And also

691
00:38:22,080 --> 00:38:24,840
Speaker 4: the assumption here is that they're going to continue to

692
00:38:24,840 --> 00:38:27,400
Speaker 4: get the funding support. But that's also you know, something

693
00:38:27,440 --> 00:38:30,680
Speaker 4: I'm watching closely, given how interest rates are high globally

694
00:38:31,440 --> 00:38:31,960
Speaker 4: great stuff.

695
00:38:31,960 --> 00:38:34,279
Speaker 1: Sharon Shann a Bloomberg Intelligence. Always great to see you.

696
00:38:34,280 --> 00:38:37,480
Speaker 1: Thank you so much for joining us. Thanks Read all

697
00:38:37,480 --> 00:38:40,480
Speaker 1: of Sharon's excellent analysis on the Bloomberg Terminal or reach

698
00:38:40,520 --> 00:38:43,319
Speaker 1: out to her directly for more information. And thanks again

699
00:38:43,360 --> 00:38:46,680
Speaker 1: to Chris Sheldon, co head of Credit and Markets at KKR,

700
00:38:47,000 --> 00:38:49,359
Speaker 1: as well as Lisa Lee from Bloomberg News. Read all

701
00:38:49,360 --> 00:38:52,400
Speaker 1: of Lisa's great scoops on the Terminal and at Bloomberg

702
00:38:52,440 --> 00:38:56,200
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703
00:38:56,239 --> 00:38:59,480
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704
00:38:59,800 --> 00:39:03,200
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705
00:39:03,239 --> 00:39:07,320
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706
00:39:07,520 --> 00:39:10,160
Speaker 1: I E as in my surname and the number eight

707
00:39:10,280 --> 00:39:14,000
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708
00:39:14,000 --> 00:39:17,480
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709
00:39:17,480 --> 00:39:18,239
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