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India: Tata bond keeps to word, if not spirit, of regs

Citi and Tata’s deal irks regulator; Further bank-backed bonds banned

The Reserve Bank of India (RBI) has issued a letter informing commercial banks in the country that they are not permitted to guarantee debt instruments, following the controversy surrounding Tata’s issuance of bonds backed by State Bank of India.

bridge loan Tata Motors took out to buy Jaguar and Land Rover

On May 21, Citi and Tata Capital joint-led a four-tranche rupee deal for a total equivalent value of $840 million, thereby completing the refinancing of the $3 billion bridge loan that Tata Motors had taken out to buy Jaguar and Land Rover. The controversy surrounds the deal’s structuring, in which the notes are guaranteed by State Bank of India, which in turn has a syndicate of 11 banks backing its master guarantee. The terms of the deal complied with the letter of the existing regulations, but in a circular issued on May 29, RBI made it clear that it viewed the deal as unhelpful for the long-term development of India’s markets. "It is clarified that the extant instructions apply only to loans and not to bonds or debt instruments," it wrote.

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