Domestic corp bond market may hum again

Subprime crisis prompts major firms to consider raising funds via this route.

After a lull of three years, Indian companies are once again planning to tap the primary corporate bond market.

According to dealers in the corporate bond market, the restrictions on domestic expenditure of funds borrowed through the external commercial borrowing (ECB) route is prompting Indian companies to consider rupee borrowing.

Yet another reason is the widening spread for Indian credit due to an overall risk aversion to emerging markets following the subprime mortage market crisis. 

CAPITAL ISSUES BY NON-GOVT PUBLIC LTD COMPANIES
Security & Type of Issue	2005""06 April""March		2006""07 April""March		2006 April""May		2007 April""May
	No. of	Amount	No. of	Amount	No. of	Amount	No. of	Amount
	No. of Issues	Amount Rs crore	No. of Issues	Amount Rs crore	No. of Issues	Amount Rs crore	No. of Issues	Amount Rs crore
Equity shares	128	20,899.30	115	30,753.00	19	10,390.00	10	1,153.00
	-118	-18,793.00	-110	-20,612.80	-18	-2,227.00	-10	-1,047.70
Preference Shares	1	10	""	""	""	""	""	""
Debentures	2	245.1	3	847	""	""	""	""
Bonds	""	""	""	""	""	""	""	""
Total	131	21,154.40	118	31,600.00	19	10,390.00	10	1,153.00
Note : Figures in brackets indicate data in respect of premium on capital issues which are included in the respective totals Source : Data are compiled from prospectus/circulars/advertisements issued by companies, replies given by the companies to the Reserve Bank's questionnaire, information received from stock exchanges, press reports, etc.

According to dealers, many companies such as Tata Power, Tata Tea, Indian Hotels, Hindusthan Organics are looking to raise funds through this route.

Indian Hotels, for example, wants to borrow from the domestic market since hotels have been included as part of real estate "" a sector not permitted to tap the ECB market under the current guidelines of the Reserve Bank of India. Indian Hotels proposes to raise around Rs 400 crore through a three year paper, said a dealer .

ICICI Bank is also planning to raise rupee funds for 10 years. Similarly, HOCL may raise Rs 100 crore through a one-year paper. Others will firm up their plans only after the volatility and interest rates settle down, said a dealer.

Over a period, the market also expects issues from Hindalco, Grasim and Larsen and Toubro.

Another factor that may encourage more Indian companies to borrow funds in the domestic market is the pricing. With an increased spread of 120-150 basis points over Libor (5.43 per cent for six-month) and transaction cost of another 80-100 basis points, the total cost of borrowing overseas roughly comes 7.63/8.20 per cent.

This is the interest rate for five years and above, explained a dealer with a bank active in loan syndication overseas. Currently in the Indian market, a triple A corporate could raise funds for 10 year at 9.75/10 per cent.

While the interest rate differential isn't much, the companies will not have to bother about the currency fluctuation by borrowing in the domestic market.

Further, the rates for the Indian companies may come down since there is a greater demand for such papers following the absence of such bonds from the better-rated companies for a long time. Dealers added that the market appetite is more for the long-term issues rather than short-term papers due to the bearish outlook on liquidity.