Overseas borrowing costs may fall further after Standard & Poor's raises India outlook

Written by Shashidhar KJ | Aparna Iyer | Mumbai | Updated: Sep 27 2014, 18:01pm hrs
Standard and PoorGlobal rating agency Standard & Poor?s affirmed India?s BBB- rating, but upgraded the outlook to stable from negative. (AP)
Indian companies looking to raise dollar funds got another shot in the arm after Standard & Poors upgraded the outlook on the country's sovereign rating to 'stable' from 'negative'. Cost of borrowing abroad could reduce further as indicated by the fall in credit default spreads of Indian companies. The CDS of Exim Bank bonds, considered as quasi-sovereign bond, narrrowed to 150 bps on Friday after the rating outlook upgrade, from 165 bps on Thursday.

Global rating agency Standard & Poors affirmed Indias BBB- rating, but upgraded the outlook to 'stable' from 'negative'. Both Moodys Investor Services and Fitch Ratings already have a 'stable' outlook on their ratings for the country.

The upgrade in the rating outlook may nudge foreign investors to buy more Indian paper, but bankers say that a deluge of issuances is unlikely unless there is an upgrade in the sovereign rating itself.

We wont see yields moving too much. The outlook is upgraded, the big move will come only when the rating is upgraded, said Manmohan Singh, head of debt capital markets, RBS. S&P said a rating upgrade is likely once the countrys real GDP per capita growth reaches 5.5%. Economists believe that this growth is likely to be achieved in 2014-15 and, therefore, the rating upgrade could well be in the offing. Indias rating is among the lowest in Asian countries rated as investment grade. The countrys rating was upgraded to BBB- from BB+ in 2007 by S&P. "This is a validation of foreign investors' belief that India is an upgrade story," said Hitendra Dave, head of global markets, HSBC.

Credit spreads for Indian companies have tightened as much as 150 bps to multi-year lows over the last nine months. Emboldened by tightened spreads, companies have already raised over $14 billion from the overseas bond market so far in 2014, which is higher than the amount raised in the entire year of 2013.