Deutsche, Bajaj Allianz split over bond deal

Mumbai: Deutsche Bank is contemplating legal action against Bajaj Allianz Life Insurance after the insurer allegedly reneged on a trade deal to deliver the bonds sold to an arm of the global bank on the National Stock Exchange (NSE) platform, said two people familiar with the matter.

The lender regulated by the Reserve Bank of India (RBI) is yet to decide on the nature of the legal recourse it would take and is examining options such as approaching the Securities & Exchange Board of India (Sebi), which regulates stock exchanges on which the relevant trades were reported.

“It would be difficult to justify the transaction as an outcome of a freak trade,” said one of the persons cited above. “These were not done on the computer terminal where one could wrongly key in numbers on the keyboard.’’ Deutsche Bank declined to comment. Bajaj Allianz also did not respond to ET’s e-mail seeking reasons for its reported decision to renege on the contract.

Bajaj Allianz has told the NSE in a note, which ET has seen, that it had erroneously entered these deals totaling Rs 210 crore, and would like to cancel the trades. These bonds, issued by Indiabulls Housing, were sold to DB International Asia Ltd, an arm of Deutsche Bank.

The insurer has reportedly not delivered the bonds it had sold, yielding 42 per cent on Thursday.

These trades had raised a few eyebrows, but the issuer was reportedly facing stress as investors questioned its funding ability after Mint Road rejected its merger with Lakshmi Vilas Bank.

Yields on Indiabulls Housing Finance bonds surged to a record 42% amid thin volumes. Three transactions worth ?210 crore in aggregate were reported on the NSE platform. Those bonds with two-three-year residual maturities were traded in the yield range of 31-43 per cent.

The fixed income traders’ lobby group refused to step in, saying it oversees only government bond sales.

“Corporate bonds come under Sebi and so do disputes arising out of them. I don’t know much about this case, but anyway it would not come under our purview,” said Fixed Income and Money Market Dealers Association (FIMMDA) chief executive DVSV Prasad.

It is unlikely that the NSE would ensure the completion of the transaction.

“Given that these transactions did not go through the clearing corporation, there is no obligation on the part of a stock exchange to complete the trade,’’ said the second person cited above.

Indiabulls Housing Finance bonds traded at a steep yield on Friday too.

Data accessed by ET showed that the 8.75 per cent bond due in September 2021was traded at 16 per cent on Friday, indicating that investors have significantly increased their yield expectations from the company.