)
Indian banks and corporates doubled their fund-raising through international bonds following the victory of Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) in the Lok Sabha elections, thanks to improved sentiments for India. With more favourable view on Indian economy and business environment under the Narendra Modi government, the risk premium for Indian papers began to climb down.
Data by Deutsche Bank show that between May and September 2014, India Inc raised $8.4 billion through overseas bonds compared with $2.9 billion in the year-ago period. Most of these issues happened in dollar denomination. Some of the key issuances that happened after May are Tata Steel, ICICI Bank and Rolta India.
Since April 30, spreads have shrunk by up to 150 basis points for various maturity tenures. Spread is the difference between the global bond yields, listed by an Indian firm and the US Treasury of similar maturity tenure.
"The major reason for these increased volumes is the consistent improvement in India macro backdrop / sentiment post the elections, resulting in a massive compression in the spreads / offshore funding levels," said Amit Bordia, head (corporate finance) at Deutsche Bank India.
In the first nine months of calendar year 2014, banks and corporates raised almost $15 billion through international bonds compared to $10.4 billion during the same period in 2013. Notably, the amount raised in the first nine months of the current calendar year is higher than $13.2 billion raised for the entire calendar year 2013, according to the Deutsche Bank data. Over a two-year period, Deutsche Bank has been leading the league table for international bonds with a market share of 14.64 per cent, according to data from Dealogic.
Last month, global rating agency Standard & Poor's (S&P) revised its outlook on India's sovereign rating to 'stable' from 'negative', while reaffirming the rating at "BBB-". Issue arrangers are suggesting banks and corporates to tap the overseas bond market before the US Fed starts increasing interest rates sometime in 2015.
"In Asia, companies with large financing requirements for the year seem to have front-loaded their fund-raising through bonds, keeping an eye on the potential interest rate increases. The US dollar continues to be the main currency for funding, while issuers do evaluate other currencies basis possible cost savings and transaction size," said Manmohan Singh, head, debt capital markets - India & South East Asia (international banking) at RBS.
Experts believe the spreads might not tighten significantly from here, despite the S&P's decision. "The significant spread compression can happen with rating upgrade," said Singh.
LOWDOWN
- Spreads compressed by up to 150 bps after April
- Spreads may not tighten significantly from here
- Issue arrangers suggesting fund-raising before US starts raising rates
- US dollar continues to be the main currency for fund raising
