Rural Electrification Corp and Union Bank of India are reviving bond sales to international investors after the market shut in December, as Indian dollar-denominated bond yields fall from a five-month high.
Rural Electrification might sell $500 million of bonds on January 18, Finance Director Hari Das Khunteta had said on December 29. Union Bank was seeking as much as 200 million Swiss francs ($208 million) and European fund managers planned to buy as soon as they got their New Year allocations of cash, General Manager V K Khanna had said on January 4.
In 2010, Indian companies more than tripled the sale of foreign-currency bonds to $8.7 billion as the central bank drove up rupee borrowing costs with six interest-rate increases to cool inflation. Average Indian dollar bond yields dropped to 5.1 per cent from 5.22 per cent last month, HSBC Holdings Plc indexes show. That compares with five-year funding costs in rupees for top-rated borrowers of 8.92 per cent, according to Fixed Income Money Market and Derivatives Association of India.
“The macro environment and risk appetite has improved from December,” Pierre Faddoul, a credit analyst in Singapore at Aberdeen Asset Management, which manages about $282 billion globally, had said on January 6.
“The finding of a solution to the European sovereign crisis helped the overall sentiment.”
‘Choppy’
Indian borrowers stayed out of the market for global debt sales in December as US Treasury yields climbed to their highest in more than four months after President Barack Obama’s extended tax cuts due to expire and as the European debt crisis worsened.
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“Markets were choppy,” said Union Bank’s Khanna. Officials from the Mumbai-based state-owned bank met investors in Zurich, Geneva, Lausanne and Vaduz, Liechtenstein, during November 18-20. Markets in Switzerland are stable and there’s still appetite for emerging-market bonds, Khanna said.
Reports showing an improving US economy and bailouts of Greece and Ireland last year helped soothe deficit concerns and revive appetite for higher-yielding emerging-market assets.
Rural Electrification hired Credit Agricole CIB, Royal Bank of Scotland Group, and Standard Chartered to help manage its sale. The nation’s largest lender, State Bank of India, raised ¤ 750 million ($973 million) in November, selling 4.75 per cent bonds maturing in 2015.
Need funds
“I expect huge issuances from India, especially among banks,” said Peter Varga, who manages $220 million of emerging-market corporate debt in Vienna at Erste Sparinvest KAG. “They will also need to fund their growth in 2011 after an amazing growth in credit last year.”
He owns bonds sold by Vedanta Resources, Reliance Industries and State Bank of India. “If the spreads are attractive, I will consider investing” in Indian debt, he said, referring to yields relative to benchmarks.
Average spreads on Indian dollar bonds have narrowed to 322 bps from 382 bps, or 3.82 percentage points, on November 5, HSBC data show.
Indian banks borrowed an average '92,300 crore ($20.3 billion) a day from the Reserve Bank of India last quarter, the most since 2000, as they struggled to meet rising demand for loans. The overnight borrowing rate between local banks was 6.38 per cent last week, up from 5.5 per cent a week earlier.
Deposit growth
Deposits grew 14.7 per cent in the two weeks ended December 17 from a year earlier, lagging behind a 23.7 per cent increase in lending, according to central bank data.
India’s state-run banks needed to raise more capital to sustain credit growth, Chakravarthy Rangarajan, prime minister’s chief economic adviser, had said in New Delhi on January 7.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, fell six bps to 154 bps on January 6, according to CMA credit-default swaps prices.
Credit swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent, should a borrower fail to adhere to its debt agreements. The contracts rise when creditworthiness deteriorates and fall when it improves.
Issuance may revive across Asia, according to Aberdeen.
“A few Chinese and other Asian companies that did not go through with their issuance plans are now coming back,” Faddoul said. “January is when activity picks up and you have more people present to drive appetite.”