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Credit Market
13 Dec 2020
Analyzing risk on State Guaranteed Bonds
State government-guaranteed bonds are mostly issued by state-owned entities that are loss-making and are unable to service debt on their own. Power distributors suffer from selling power cheaper than the cost of buying or generating power and the difference is borne by the state. States do not have funds to pay for the losses that keep accumulating and banks stop giving loans as dues mount. Hence bonds issued by such entities are subject to 2 risks, 1. states not paying the entities for losses and 2. states not having discipline to service the debt.
Arjun Parthasarathy
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