The lack of access to funds for below-top-rated corporates, along with attractive borrowing costs in the offshore market, has driven Indian firms to raise $23.6 billion through dollar bonds in 2019 — a nearly fivefold jump from the previous year.
An analysis of the data showed that corporates from infrastructure, power, non-banking financial companies (NBFCs), and metal industries issued a slew of such bonds to meet their funding needs in the current year.
“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 are also using the external commercial borrowings (ECB) route to tap into offshore liquidity.
In the first 10 months of 2019 (January-October), ECB raised by Indian firms was close to $46 billion, against $32.69 billion for whole of 2018. An indicator of strong demand for Indian firms, the maximum interest rate on these instruments for lower-rated corporates reduced to 11.65 per cent, from 15 per cent last year.
On the domestic front, NBFCs continue to find it difficult to raise funds at reasonable rates, as mutual funds and banks shy away from extending credit lines to NBFC players amid concerns on asset-liability mismatches in the sector, following the Infrastructure Leasing & Financial Services crisis last year.
Among NBFCs, Indiabulls Housing Finance, Shriram Transport Finance, and gold financier Muthoot Finance have floated issuances worth $3 billion in the dollar bond market.
Market experts say more issuances are on the anvil.
“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 the overall credit quality,” Manglunia added.
According to experts, 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, and GMR Hyderabad International Airport have been active in the dollar bond market this year.
“The issue was never with the top guys. But the lower-rated firms never got money at reasonable rates from the corporate bond market earlier, and they are unlikely to get it in prevailing conditions,” said a senior executive with a medium-sized company, which has an AA-rating — three notches below top grade.
Among government-owned entities, Power Finance Corporation accessed the dollar bond market the first time for raising 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, and Axis Bank raising funds through dollar bonds during the year.
For the first nine months of 2019-20, dollar bond issuances stood at $16.7 billion — 60 per cent higher over the 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: Business Standard