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India Inc raises record $30 billion in overseas borrowings as global yields drift south

Mumbai: Indian companies have raised a record $30.25 billion in overseas borrowings this year as they exploited abundant overseas liquidity and overcame a tight domestic market that turned risk averse.

While this has helped reduce borrowing costs of Indian companies when global investors were chasing yield in a negative rate environment in developed markets, it also aided non-banking finance companies develop a new avenue to raise money when the local market shut its doors on them.

“With pockets of liquidity in local markets facing some headwinds, sophisticated issuers have tapped international credit pools,” said Amrish Baliga, managing director, Deutsche Bank India. The appetite for high-yield Indian issuers has been healthy in global markets although credit quality/ratings of issuers remain a priority.”

Non-banking finance companies like Shriram Transport Finance and Mahindra Finance joined the likes of Bharti Airtel and Reliance Industries in raising funds from international markets as it was cheaper to borrow. Their cost of borrowing is estimated to be lower by about 50-100 basis points compared to what they might have had to pay in domestic markets at the beginning of the year.

Indian companies have raised $20.88 billion by selling dollar bonds, show data from Dealogic, a data analytics company. Companies have availed foreign currency loans worth $8.36 billion during the year.

What made it easy for Indian firms is also the continued easy money policy in the West and the sudden reversal of course by the US Federal Reserve which lowered rates instead of the expected continued hikes at the beginning of the year. That and the continued quantitative easing by the European Central Bank led to more than $17 trillion worth of bonds falling to a negative yield territory. It has since reversed with just about $6 trillion yielding negative returns.

“The availability of global liquidity and the drop in global yields did make it easier for Indian issuers to raise funds overseas in 2019 at attractive rates of interest,” said Ananth Narayan, professor of finance at SPJIMR. RBI’s relaxation of rules pertaining to ECBs also made it easier for Indian debt issuers to tap overseas markets.”

At the beginning of the year, the Reserve Bank of India rationalised the overseas borrowing norms allowing a uniform borrowing limit of up to $750 million a year across tenors. With NBFCs still remaining untouchables, the foreign borrowing may continue.

“Having some visibility in the first quarter of 2020 with our loans and bond pipeline we continue to remain upbeat and believe the 2019 momentum continues,” said Deutsche’s Baliga.

But all the factors may not remain benign. At the beginning of the year, the long- term foreign currency swaps undertaken by the RBI to infuse rupee liquidity also reduced hedge costs for borrowers in foreign currency. But that may not hold true anymore.

“Hedge costs have generally gone up again, and for good quality Indian borrowers, there is no longer any visible cost advantage in borrowing overseas,” Narayan said.

Source: Economic Times