Suzlon, the troubled Indian wind-turbine maker has completed India's first letter of credit (L/C) enhanced overseas bond.

But doubts over the bond backed by standby L/Cs have emerged in the wake of the US$647 million deal.

Generous premium

JP Morgan and SBI Capital Markets priced the five-year Suzlon bond at a very generous premium over the main L/C provider, State Bank of India (SBI).

This should have ensured that the paper stayed priced at around that level.

Underlying risk

Instead, the bonds traded at 20 basis points higher immediately after the issue's trading debut.

Analysts say this may reflect concerns over the underlying credit, despite the supposed safety net provided by SBL's standby L/C.

Market concerns

Other L/C-enhanced US dollar issues in Asia - such as Zijin Mining, Cosco and Hainan Airlines - have not experienced such difficulties in secondary markets. Unlike Suzlon, these businesses are considered financially stable.

Some commentators suggest that other investors may be concerned about the extra layer of risk involved in the standby L/C itself.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.