Indian companies raised $23.6 billion through dollar bonds in 2019, marking a nearly five-fold jump from the year before as access to funds narrowed in the country and borrowing in offshore markets became cheaper.
Data shows that companies in infrastructure, power, metal and shadow banking issued a slew of such bonds. “Globally, the rates have been conducive. For borrowers, the all-in cost matters. Due to currency stability forward premiums are better, leading to lower hedging costs,” said Ajay Manglunia, managing director and head-institutional fixed income, JM Financial products.
Domestic players also used the external commercial borrowings (ECB) to access offshore liquidity. Indian firms, from January to October 2019, raised close to $46 billion from ECB, compared to $32.69 billion for whole of 2018. The maximum interest rate on these instruments for lower-rated corporates– an indicator of strong demand for Indian firms–reduced to 11.65 per cent, from 15 per cent last year.
NBFCs continue to find it difficult to raise funds domestically, as mutual funds and banks shy away from extending credit amid concerns on asset-liability mismatches—a fallout of last year’s IL&FS-crisis. NBFCs like Indiabulls Housing Finance, Shriram Transport Finance and gold financier Muthoot Finance have floated issuances worth $3 billion in dollar bond market.
Market experts predict more issuances. “We have really driven the dollar market for some of the NBFCs, and we expect to see more of this coming in the next six to nine months,” said Dixit Joshi, group treasurer of Deutsche Bank AG.
Borrowing costs have eased with softening of US treasury yields. Dollar bonds are linked to US treasury yields, which have come down from 3.23 per cent in early November 2018 to 1.9 per cent at present. “Overseas investors are showing strong appetite for the dollar bond supply from Indian companies due to good yields on these bonds, and overall credit quality,” said Manglunia.
Experts say even as foreign investors discriminate between higher and lower-rated issuers, the high-yields market has started to take shape overseas. Among Indian corporates, Adani Transmission, Adani Ports, Adani Green Energy, JSW Steel, GMR Hyderabad International Airport, have been active in the dollar bond market this year.
“The issue was never with top guys. But the lower-rated firms never got money at reasonable rates from corporate bond market earlier, and they are unlikely to get it in current conditions,” said a senior executive with a medium-sized company, which has AA-rating, three notch below top-grade.
Among government-owned entities, Power Finance Corporation accessed the dollar bond market the first time to raise shorter-term (five-year tenure) money. Besides these, banks were also active participants, with IndusInd Bank, State Bank of India, HDFC Bank, Bank of Baroda, Axis Bank, raising funds through dollar bonds during the year.
For 9MFY20, dollar bond issuances stood at $16.7 billion; 60 per cent higher over corresponding period last year.
According to foreign brokerages, investors looking at Asian markets also want to diversify their portfolio, which has led to strong demand for Indian bond issuers. “There are concerns around credit quality of Chinese bond issuers even those Chinese corporates have among the largest dollar issuances this year,” said an analyst.
Source: Maalaimalar
