Indian companies had raised a record $18.6 billion in 2014 through offshore bonds. This year, it may cross $20.50 billion, says MD, Treasury and Markets, India, at DBS Bank Vijayan Subramani. In an interview with Bhavik Nair, Subramani indicates Singapore dollar-denominated bond issues from India are likely to make a comeback this year after remaining absent in 2014. Excerpts:
In 2014, Indian offshore bond issues had hit a record $18.6 billion. How do you see the figure panning out this year?
There will be a continued interest in Indian bonds. Two trends are expected — some smaller companies will be able to get an access to the offshore markets while bigger companies may not find it attractive enough as they would have an option to raise funds in India at equally competitive rates. If the market stabilises and arbitrage comes back, this year figure should be around $20.50 billion dollar.
The US likely to raise rates this year and the market is expecting a 25 bps cut in key rates. Would borrowing abroad remain an attractive option even as the interest rate differential narrows?
It depends on the company’s ability to raise money domestically. If a company issues bonds domestically, the only way to gain is by issues bonds at a floating rate, considering we have an easing interest rate cycle. Hedging is a challenge while raising funds offshore, and unless companies have end-use of the currency they are borrowing, it may not be too attractive to raise money considering the hedging costs.
What happens to the cost of borrowing if companies hedge their overseas exposure?
Theoritically, if the cost of hedging is taken into account, there would not be much difference between the cost of raising funds abroad and then swapping it, and the cost of raising funds in India. But because of various constraints like the external commercial borrowing (ECB) limits, cross-border convertibility and various rules of investments, the cost of raising funds abroad will be more than India if the hedging cost is added. If a corporate decides to hedge dollar exposure, it will have to add MIFOR rate as well. For example, if a company is borrowing at a yield of 3%, the overall borrowing cost will go up to 10% with the MIFOR rate of 7% adding to it. That’s why many big companies may not want to hedge their exposure.
Which geographies do you find investor-appetite for Indian bonds? Which other Asian countries’ bonds have a good demand?
We operate in Asia and there is a fair amount of demand for Indian bonds from investors in Singapore and Hong Kong, but we also see good appetite in Europe. In terms of other countries, Indonesia tends to attract good investor interest. Chinese and Australian companies are also actively into the bond market.
If you compare fund raising through the offshore loan route and the offshore bond route, which one is more attractive?
The bond route is more attractive as they are traded instruments because of which the cost of borrowing tends to be lower. There could be a minimum difference of at least 20 to 30 basis points between cost of borrowing through the offshore loan route and the bond route.
You are a Singapore-based bank. Are any companies looking to issue bonds in Singapore dollar?
Last year, there was no Singapore dollar bond issue from India. This year, we have a pipeline which is not bad but we are just waiting for the right levels. We have at least three Indian companies likely to issue bonds in Singapore dollar.