Mumbai: Indian entities have raised a record $3.3 billion so far this month, making it the best January for raising foreign currency debt as overseas investors poured in money noting the country's stable economic standing in the emerging market universe.
A diverse range of companies, from oil marketing Bharat PetroleumBSE -0.97 %, Adani Ports, power generator NTPCBSE -0.11 %, State Bank of IndiaBSE 0.11 % (SBI), mining and metals company Vedanta and ag riculture-linked Jain IrrigationBSE -0.47 %, have tapped the overseas market this month mainly as the premium over benchmark US treasuries was either absent or negligible.
“The premium has shifted to issuers mainly as investors are ready to invest fresh money in the new year,“ said Ananth Narayan, head financial markets-Asean & South Asia at Standard Chartered. “US yields have been stable despite expectations of a hike in rates by the Federal Reserve and India's relative stability means people are willing to put more money here.“
New bonds usually list at a premi um to the existing ones as investors look to get the best price for these securities. However, this January , investors were willing to pay higher prices than the bonds being traded in the second market. For example, Vedanta's $1-billion five-and-a-halfyear issue yielded 6.37%, much lower than the 6.70% bond being traded at the exchange. Bond prices and yields move in opposite directions.
Similarly , SBI's $500-million fiveyear bond and BPCL's $600 million 10-year paper listed at zero premium or on a par with their existing bonds being traded.
The tighter pricing has been despite the fact that the US treasury yields have moved up in the last one year. The five-year US treasury is trading close to 2% compared to around 1.40% a year earlier, while the 10-year benchmark is at around 2.50% compared to 2% a year ago.
Bankers said Indian companies have latched on to this opportunity to refinance their existing debt, noting the negligible spread they are paying above the US benchmarks and also because these good times will not last long as US rates will only go higher. “This massive fund raising exercise has seen new benchmarks being set by Indian issuers,“ said Pushkaraj Gumaste, head of corporate & investment banking coverage at Barclays India. “It is testament to the growing appetite for Indian credit among the international investors across geographies and currencies.“
Gumaste said he expects this rush to open the door for new Indian issuers in the international markets. Like Jain Irrigation, which raised $200 million last week by selling five-year dollar bonds for the first time, mainly to retire existing high cost loans.
Solar and wind power generator ReNew Power is the next in line, planning to raise $450 million.
A clutch of public sector companies and non-banking finance companies are in the queue to raise dollar debt. However, next week's US Federal Reserve meeting and India's budget announcements will be crucial on how investors price Indian debt.
“We (have) witnessed a period of stability that most people do not expect to be the norm in 2017,“ said Sanjeev Jha, MD at Bank of America-Merrill Lynch.“With interest rate hikes likely to be back ended in 2017, and various geopolitical events scheduled for later this year, we expect companies to complete their funding needs sooner rather than later. In India, we expect the debt market issuance volumes to remain robust as issuers increasingly switch from bank markets to bonds.“
Amrish Baliga, head, structured origination at Deutsche Bank India, said “Global investors chasing yields but with a focus on creditworthiness continue to show strong interest volatility notwithstanding“.
Source: economictimes.indiatimes.com