In a record high, foreign investors have purchased Indian debt securities worth USD 19 billion this year, which marked a 20 per cent jump from the previous year and even saw the so-called 'junk' bonds being lapped up aggressively despite poor corporate and sovereign ratings.
Junk bond is colloquially used for a high-yield or non-investment grade bond. These bonds are generally fixed-income instruments that carry a lower rating and are called so because of their higher default risk in comparison to the investment-grade securities.
The year passing-by has seen international investors buying junk bonds worth at over USD 5 billion issued by Indian entities, as companies had to look overseas to raise funds for their working capital needs and also to retire their existing costly loans including those raised domestically.
Across all investment grade categories, the Indian companies and banks mopped up a record high amount of USD 19 billion in 2014 -- led by corporate giant Reliance Industries that grossed up a hefty USD 3.3 billion in forex debt.
The interest in forex debt received a further fillip due to the rupee funds remaining costly for the third year in a row.
On the flipside, the spike in forex fund raising spree has taken the nation's external debt to a little more than a quarter of its GDP at over USD 500 billion.
Investment bankers see more activity in the debt market in the first quarter of 2015 on indication by the US central bank of a rate hike April onwards.
The forex fund raising had risen by a much sharper 60 per cent in 2013 to USD 15 billion.
As per the market data, the coupon rates on forex bonds varied from a low of 3.25 per cent for SBI to over 8.75 per cent for junk bonds from companies like Motherson Sumi and Rolta during 2014.
India Inc raised these dollar money for working capital needs as also to retire high cost rupee debts. Among others, the diversified Essar Group and telecom major Bharti Airtel raised over USD 5 billion to pare their costly rupee loans.
On an average, companies make a clean saving of 6 per cent in financing cost, according to investment bankers who attributed the massive spike in forex borrowing to the elevated debt servicing cost in the country apart from fearing higher interest rates, following the US Fed hints of jacking up interest rates by early 2015.
They also give the credit to improved investor sentiments after a new government led by Prime Minister Narendra Modi came to power after a decisive victory in general elections earlier this year.
Deutsche Bank India's Corporate Finance Head Amit Bordia said that 2014 has been a record year for offshore debt issues with an aggregate amount of USD 18.6 billion till date.
"The year was characterised by emergence of high yield with USD 5.5 billion getting priced across 13 bonds," he said.
Deutsche Bank topped the chart in debt sales with a fee income of 10.3 million euros and a market share of 15.9 per cent, while unseating Stanchart from the top.
