We expect cross-border bond issuance from Indian companies and financial institutions to increase through 2015 as an improved economic outlook for the country has increased investor appetite for Indian credits and as regulatory changes make it easier for Indian companies to borrow in foreign currency, Moody's added in the report.
Cross-border bond issuance from Indian financial and non-financial institutions reached $15.9 billion for the first seven months of 2014, near the record high of $16.4 billion reached last year, according to data from Dealogic. Moody's expects an additional $2-$3 billion of foreign currency issuance from non-financial corporates in the year
The note added that three sectors oil and gas, metals and mining, and telecommunications issued 67% and 76% of the foreign currency bonds from Indian non-financial corporates in 2013 and 2014, respectively. We expect oil & gas and metals & mining companies to continue driving the increase in issuance. Thats because they have a natural hedge against exchange-rate risk and do not need to swap their foreign currency borrowings into local currency.
In addition, Moody's expects bond issuance from the pharmaceutical, information technology (IT) and business process outsourcing (BPO) companies because they derive a large part of their revenues from exports, which are typically denominated in US dollars. This gives them a natural hedge against currency fluctuations for their US dollar-denominated debt.
Moody's said that the credit spreads on foreign cuurency bonds tightened between January and July, more so that the spreads on foreign currency bonds across Asia. The tighter spreads allow more Indian companies to issue foreign currency bonds that comply with Reserve Bank of India regulations, Moody's s added.
In addition, the government's move to relax norms regulations and slashed the withholding tax on interest payments to international investors and raising the guarantees that Indian entities can provide for foreign currency debt issued by overseas subsidiaries. The report added that though the interest rates on foreign currency bonds are lower than those on rupee-denominated bonds, but the cost of hedging exchange-rate risk makes it more expensive for Indian entities to borrow in foreign currency and might be a barrier for more companies to issue bonds.