India Inc explores new currencies for overseas bonds

One in 4 deals in 2013 was non-US dollar

The popularity of overseas bonds in currencies, other than the US dollar, is rising among Indian companies exploring opportunities to raise money from foreign markets. While favourable swap rates have made fund raising less expensive in non-US dollar currencies, raising money in different currencies has also allowed domestic companies to diversify their investors’ base.

Consider this: In 2009, all the overseas bond issuances by Indian companies were in US dollar, while in 2010 only one out of the 16 issuances was in currency other than the US dollar. In 2012, Indian companies opted for different currency in 11 out of 28 such deals. In the first three months of this calendar year, one out of every four issuances was in currency other than the US dollar.

In the past 15 months, Indian companies and financial institutions have raised money in Australian dollar, Chinese renminbi, Singapore dollar and Swiss franc. According to investment bankers, a few domestic companies are also exploring opportunities to raise money in British pound, Japanese yen, South African rand and euro.

Typically, when an Indian company raises money in a foreign currency, it immediately converts the funds into dollar. If the swap rates for such conversions are favourable, it turns out to be cheaper than raising money in US dollar.

In March, 2013 Export Import (EXIM) Bank of India became the first Indian issuer to sell Australian dollar bonds. The bank’s funding cost was 10-15 basis points lower than the cost it would have incurred by raising the money in US dollar. Bankers, however, claim cost savings is not the only criteria while choosing a currency.

“We are always looking to diversify our funding sources, explore new markets and expand investors’ base. We have decided to issue bonds in Australian dollar as the swap rates are attractive and there was good appetite for the Indian paper,” David Rasquinha, executive director of EXIM Bank, said. The bank had initially decided to raise AUD 100 million but doubled the issue size after watching the response.

  “It is important to grow and diversify your investors’ base, as it allows you to tap into newer sources of liquidity and helps to de-risk your liability base. Many borrowers would actually prefer to diversify their investors’ base even if the cost is slightly higher, say 5-10 basis points,” Sunil Agarwal, head of institutional client group at Deutsche Bank in India, said.

According to him, Indian issuers are becoming savvier and are quick to decide on issuing bonds in a new currency.

“This kind of quick decision making was not seen earlier,” Agarwal said.

Bankers, however, said US dollar remains the currency of choice for most issuers, especially if the issue size is large. “The foremost thing that everyone thinks is how to reduce cost. Hence, it makes sense to look at different currencies if the swap cost is favourable. It also allows the issuer to diversify the source of funding. But, the US dollar continues to be the largest and most preferred market. So, if an issuer has a large funding requirement, US dollar will be his first preference,” Maneesh Malhotra, managing director and head of debt finance at Hongkong and Shanghai Banking Corporation (HSBC) in India, said.