With investment cycle likely to pick up soon, Indian corporates may increasingly tap overseas debt markets to meet their funding requirement, says a report.
"We expect Indian corporates to increasingly access the offshore debt capital markets for their funding requirements. The growth is likely to be driven by the need to refinance debt and fund capex once the investment cycle restarts," Fitch Ratings said.
It said the number of new issuers will also increase as many of the corporates are looking to diversify their funding sources.
The report said the offshore capital markets are becoming increasingly attractive to corporates partly because of better pricing for their bonds.
"The offshore markets now present a relatively more cost-effective funding source compared with onshore funding for Indian corporates that have material cash inflows denominated in foreign currency," the international rating agency said.
Pricing of offshore bonds has also been aided by a reduction of withholding tax on interest payments of offshore bonds to 5 per cent from July 2014 compared with 20 per cent previously.
The demand for domestic bonds has also been strong due to expectations of improvement in the country's economic growth, improved political stability and strong liquidity in global capital markets, the report said.
As per Fitch, offshore bond issuances by non-financial corporates have crossed USD 13 billion so far in 2014, compared with around USD 9 billion during entire 2013.
Issuances by non-investment grade (rated lower than 'BBB-') corporates have increased significantly to over USD 5 billion in 2014 from USD 3 billion last year.
The number of such corporates issuing bonds has also increased to over ten compared with four in 2013.
