At $14.7b so far, overseas bond sales on pace to set new record

Written by PTI | Mumbai | Updated: Jul 27 2014, 19:27pm hrs
With Bharti Airtel, ONGC Videsh, Tata Steel and SBI hitting the overseas bond markets with USD 1-billion-plus issues, debt raised by 15 domestic companies so far this year is sniffing at the record USD 16.5 billion India Inc had raised in the entire 2013.

Overseas bond sales have touched USD 14.7 billion till date this year, according to the data collated by Deutsche Bank India, which was part of 15 out of the 28 issues by 15-odd companies.

Last year domestic companies had mopped up USD 16.5 billion, up 65 per cent from 2012.

Other merchant bankers are also very bullish about a hefty fee income this year as they see this calendar year to be on course to set new record, thanks to high domestic interest rates and the low interest regime outside, coupled with the sentiment revival in the country post the elections. However, most of the money being raised to repay/refinance these companies high debt burden.

On an average companies gain an interest arbitrage of 500-600 basis points by raising funds overseas, say the merchant bankers.

This spike in international debt raising is happening despite the Reserve Bank putting breaks on companies going to the ECB route in an unbridled manner.

Leading the pack this year is Sunil Bharti-led Bharti Airtel which since January has mopped up USD 2.4 billion in four issuances, followed by the state-run energy major ONGC's overseas arm ONGC Videsh which had on July 8 sold bonds worth USD 2.23 billion to pay back the bridge loan it had availed of to buy 10 per cent stake in the Mozambique oil block.

The third on the top league is the country's largest alloy maker Tata Steel which last Friday sold high yielding bonds worth USD 1.5 billion in a dual tranche issue which was the company's debut US dollar bond sale, followed by the nation's largest lender State Bank's April 10 issue of USD 1.25 billion again in a dual tranche deal.

Last Friday alone three companies raised USD 2.4 billion - Tata Steel, power producer GreenKo (USD550 million) and RCom' overseas arm Global Cloud Xchange (USD 350 million).

Barclays India managing director and head of global finances Rakesh Garg told PTI that the spike in global bond sales by domestic companies at good pricing is due to the receding risks and the resultant rising demand for quality debt from international investors.

Deutsche Bank India corporate finance head Amit Bordia, who was a lead arranger for GreenKo's sub-investment grade issue, which got an order book of over USD 1.4 billion to the very bullish nature of global investors on the country.

"Global investors continue to be very bullish on India. There is huge optimism on the country post elections, and the confluence of liquidity, low rates and tight credit spreads presents an unprecedented opportunity for India Inc," Bordia said, adding more issues are on the pipeline as the economy improves.

On the GreenKo issue Bordia said despite the softer market backdrop, the transaction was announced in a very busy period with two other high-yield deals announced competing for investors' attention.

During the year so far there were seven high yielding euphemism for sub-investment grade bonds USD4.1 billion from companies like Tata Steel (USD1.5 billion), Tata Motors (USD 300 million), GreenKo (USD550 million) GCX (USD 350 million) Rolta India (USD 300 million) IL&FS overseas arm ITNL (USD 575 million) and Motherson Sumi (USD 500 million).

In bond market parlance, B-/BB- rated bonds are referred to as junk bonds or sub-investment grade debt, and normally attract high premium or high coupon rates. The coupon rate is the yield the bond will pay on maturity.

The other main issuers during the year include Bank of Baroda (USD1 billion from two issues), Syndicate Bank (USD 400 million), ICICI Bank (USD 400 million from two issues), Union Bank of India (USD 350 million), Oil India (USD 1 billion from two issues), Exim Bank (USD 500 million), IDBI Bank (USD 300 million), Bharat Petroleum (USD 200 million), and Indian Railway Finance Corporation (USD 500 million).