Offshore bond issuances by Indian firms and banks so far in 2016 have fallen to less than half of the volumes seen in the same period last year.
Bloomberg data shows that companies and banks raised $2.2 billion via overseas bond issuances between January and mid-May in 2016, compared with close to $5 billion in the same period 2015.
This year has seen only three major issuances in terms of volumes. Exim Bank of India, NTPC and ICICI Bank raised a total of $1.7 billion. In 2015, some seven issuers had raised a total of $4.2 billion. Reliance Industries itself raised $1.75 billion via two different offshore bond issuances in the stated period. There were also first time offshore bond issuers such as Delhi International Airport.
Foreign bankers are of the view that issuance volumes got affected due to factors such as volatility and rising spreads due to lower fund allocations to emerging markets.
Kaustubh Kulkarni, managing director and head, debt capital markets at Standard Chartered, said offshore bond issuance volumes were down not only in India but across Asia for the first part of the year mainly because of volatility in markets.
“Fund allocations to emerging markets had also taken a hit, leading to a surge in the spreads. The credit spreads for Indian borrowers in the secondary market were very high and it did not make any economic sense for issuers to come and tap the market,” Kulkarni said.
Requirement of funds is also a deciding factor for companies to tap foreign markets. Rakesh Garg, managing director and head of global finance (India) at Barclays, said one of the reasons why offshore bond issuances are not picking up is that there is no increase in capital expenditure in the industrial and the manufacturing sectors.
He added that guidelines brought out by the central bank in regard to the external commercial borrowing (ECB) may have affected the volume of issuance in some way. “Moreover, the RBI has tightened the pricing rules for external commercial borrowing (ECB) as a result of which some sub-investment grade issuers who might have had ambitions to raise funds overseas might not be able to tap the markets. This is more so with the rise in spreads on high yield issuers.”
One of the other factors that seems to have affected issuance volumes is the competitive spreads offered by the offshore loan market — primarily dominated by some Japanese and Australian banks. At least for top-rated issuers and for loans up to a tenure of five years, offshore loans turn out to be an attractive source of funding due to attractive spreads offered by lenders.
“Companies could also look towards the alternate sources of funding in the form of offshore loan market that offers a very competitive spread compared to the offshore bond market,” Kulkarni pointed out.
It is noteworthy that 2014 was a record year in terms of offshore bond issuance volumes from India at $18.6 billion. Bankers were confident that the trend will continue in 2015, but the issuance volume fell to less than half of what was seen in 2014.
This time, however, bankers believe issuance volumes will remain lower than what was seen in 2015. “This year, we might see issuance volumes even lower than 2015. With so few issuances in the first four-and-a-half months, we cannot expect the figure to exceed last year’s volume,” Garg said.