Forex debt raising soars, touches $ 5.6 billion so far this year.

​MUMBAI: As domestic interest rate is likely to remain elevated for some more time, corporates and banks are hitting the international debt market with renewed interest and have mopped up a hefty $ 5.6 billion so far this year.

Last year, India Inc raked in a whopping $ 16 billion, up 60 per cent from 2012, through international debt market to meet their working capital needs as well as to retire high cost rupee debts.

Leading the chart this year is State Bank of India, which last Friday sold bonds worth $ 1.25 billion in a dual tranche issue to international investors. This record sale was preceded by a $ 1-billion issue by the state-run Oil India, in its debut foreign bond sale last Tuesday.

Investment bankers attribute the rise in forex borrowing to the elevated debt servicing cost in the domestic market and skimpy margins due to the lingering economic slowdown, which has entered the third year now. And going by the large dollar mop-up this year so far, merchant bankers are of the view that 2104 may better the 2013 record.

As per investment bankers, close to $ 6 billion bond sales are in the pipeline before July from a clutch of big corporates like Bharti Airtel which is planning to raise $ 2 billion before July, OVL, IFCL etc.

Other issuers include Power Finance Corporation which is planning up to $ 700 million issue, Rural Electrification Corporation which is tapping a $ 1-billion issue, and IFCL which is eyeing close to $ 1.5 billion in forex bond sale.

ONGC Videsh is also planning a benchmark issue shortly to raise $ 500-700 million to fund its Mozambique oil and gas block acquisition. According to the company, the proceeds will be used to pre-pay a bridge loan of $ 2.2 billion it had raised earlier this year for the Mozambique oil blocks.

Overseas fund raising by domestic corporates had came to a near halt following the May 24, 2013 tapering talk by the US Fed.

But investment bankers say that domestic firms can still save up to 5 per cent in interest cost by raising forex debt in comparison to rupee loans, hence the renewed interest.

At present, the US treasury rate is in the realm of just about 2.75 per cent, while in the country it's nearly three-times higher.

Since the tapering talk in May and December, there were only three main debt issuance from the country - HDFC Bank's USD 500-million issue in October, ICICI Bank's USD 750 million in November and Bharti Airtel's 750 million euro issue in December.

Last Friday, State Bank sold Reg S bonds worth USD 1.25 billion in a dual tranche issue to international investors, who have lapped up the issue 6.4 times its size. The SBI issue is the single largest issue ever by a domestic issuer.

StanChart India capital markets head Jujhar Singh said Oil India's USD 1-billion bond issuance was its inaugural Reg S issue and the largest ever issuance by a PSU to date, and reaffirmed international bond investors' strong interest for issuance by high-quality debt from the country.

The other major issuers this year include Bharti Airtel, ICICI Bank, Exim Bank, Axis Bank, IDBI Bank, and IRFC, among others.

The foreign bond sale this year was opened by Bharti in early January with a 250 million euro issue in its bid to prepare a war-chest for the spectrum auction in February by reopening its 750 million euro bonds sold in December.

Bharti raised the money through its Netherlands arm at 275 basis points above the European mid-swap rate.

Bharti again hit the bond street in March with USD 350 million Swiss franc issue at a coupon of 3 per cent, making it the largest ever Swiss franc bond sale by a domestic company, according to Deutsche Bank India financing head Randhir Singh.

Bharti is planning to tap global debt market again with a USD 2 billion issue before July, out of which a USD 400 million is expected anytime this month. In March 2013, it had raised USD 1.5 billion in two issues.

January also saw state-run Bank of Baroda raising USD 750 million from a Reg S issue. Regulation S bonds are sold to non-US based investors, which means resident American investors cannot participate in the issue but non-residents can.

The BoB issue, its first Reg S note issuance, was priced at a coupon of 4.8 per cent and was raised by its London branch.

In February, Indian Railway Finance Corporation (IRFC) raised USD 500 million through a five-year international bond sale at a coupon of 3.917 per cent, making it the second dollar bond sale by the company.

In March, IDBI Bank raised USD 300 million at a coupon of 5.06 per cent for a 5.5-year Reg S bond sale.

National Housing Bank also tapped the forex market with a USD 200 million ECB loan late March under the USD 1-billion special RBI window opened for funding affordable housing. Under the same scheme, private sector Dewan Housing also raised USD 70 million earlier this month.

March also saw the sovereign-owned export-import financier Exim Bank selling USD 500 million worth bonds to overseas market in a 5.5-year money at a coupon of 3.96 per cent. The issue got oversubscribed by six times.

ICICI Bank also came out with its maiden Aussie debt issue in March, raising AUD 150 million at a coupon of 6.2 per cent in a five-year money.

Source : economictimes.indiatimes.com