Volatile exchange rate slows dollar bond issuance by Indian companies

Dollar bond issuance by Indian companies more than halved as exchange rate swung, and low appetite for Indian bonds kept such issuance subdued.

While dollar bond issuance in 2017 was at $13.11 billion, it dropped to $6.09 billion in 2018. However, this didn’t mean that the Indian companies cut down on their fundraising significantly. They made good on their dollar funding to raise money from the domestic market.

The total fund raised, through rupee and other foreign currencies, was Rs 9.39 trillion in 2017, this fell to Rs 8.63 trillion in 2018, across all companies and sectors, including public sector ones. Most of the debt papers issued were in rupee, according to data from Bloomberg.

“The appetite for Indian bonds in the international market was subdued as very few companies did well in 2018. That explains why dollar bond issuance fell. Besides, rupee depreciation fear meant that hedging costs were very high for the issuers,” said Prabal Banerjee, finance director, Bajaj Group.

The rupee flip-flopped in 2018

Directly co-related to crude prices, the rupee hit its lifetime low of 74.4 against the dollar in September as oil crossed $85 a barrel. But rupee started strengthening back as crude prices softened. While the rupee started around 64 a dollar in 2018, it closed at below 70 a dollar as the year ended.
 

This uncertain rupee outlook meant that the Indian corporates could not take a firm view on the rupee level, and hence they delayed raising funds in dollar.
 

“Capacity creation and credit offtake in manufacturing/industrial sector have been slow, due to excess capacities. Whatever buoyant credit offtake we are seeing from the banking sector (15 per cent y-o-y) is driven by retail and services. This has contributed to lower mobilisation of resources, including issuances abroad,” said Joydeep Sen, consultant at Phillip Capital Fixed Income Desk.

However, the situation might improve after the General Elections.

“Post-election, the issuance may increase as Indian banks are tightening their purse strings due to credit qualifications concern and companies may not have much of an option but to seek dollar funds. In 2018, it was the same consideration, but banks are likely to be more cautious with the capital they get, which they will use for satisfaction of capital adequacy ratios prescribed by the RBI,” Banerjee said.