RBIs interest rate raises spur most overseas bonds since 2007

Written by Bloomberg | Updated: Mar 30 2011, 06:11am hrs
Indian companies, led by banks, sold the most foreign-currency bonds in a first quarter since 2007 as central bank governor D Subbarao raises interest rates at the fastest pace in Asia.

Bank of India and Bank of Baroda are among borrowers that issued $3.4 billion of bonds overseas this year the most since companies raised $4.9 billion in the first three months of 2007 obtaining lower yields than theyre paying on rupee debt, according to data compiled by Bloomberg.

Indias benchmark interest rates that rose to 6.75% on March 17 are higher than Chinas at 3% and compare with the US Federal Reserves range of zero to 0.25%, the data show.

Since the Fed hasnt yet begun to tighten, ahead of this Indian banks have done well to raise funds abroad, Ajay Mahajan, managing director at UBSs Indian unit, said.

The finance ministry forecasts the $1.3 trillion economy may expand as much as 9.25% in the financial year starting April 1, driving lenders to the bond market to meet increasing demand for credit.

Bank of India sold $500 million of 6.25% notes due in 2021 last month priced to yield 260 basis points, or 2.6 percentage points, more than similar-maturity Treasuries. The yield dropped to 6.18% on Tuesday and the spread widened to 286 basis points, according to Royal Bank of Scotland Group prices on Bloomberg.

Bank of Indias R732 crore ($163 million) of 9.35% bonds due in July 2021 last yielded 9.53%, according to Bloomberg corporate bond pricing.

Bank of Baroda raised $500 million from 5 1/2-year, 5% notes on February 24 priced at a 285 basis-point spread. The yield rose one basis point to 4.83% on Tuesday and the spread narrowed to 247, RBS prices show. The lenders R920 crore of 8.95% bonds maturing in May 2016 yielded 9.23%, Bloomberg composite prices show.

Indian Railway Finance sold $200 million of five-year 4.41% debt at par. The company lowered its price guidance for the bonds, according to a person familiar with the matter.

The company marketed the notes at a yield of between 220 basis points and 225 basis points more than similar-maturity Treasuries, down from an earlier range of 225 basis points to 235 basis points, the person said, asking not to be identified because the information is private.

Indian local-currency corporate offerings dropped to R30,400 crore this year, heading for the lowest quarterly tally since the three months ended September 30, 2008, according to Bloomberg data.

Borrowing rates are certainly advantageous overseas to companies, said Parthasarathi Mukherjee, Mumbai-based treasurer at Axis Bank, the leading underwriter of rupee debt this year.

Theres some degree of incentive for borrowers to go abroad. Standard Chartered was the top-ranked arranger, helping sell $416.7 million of overseas bonds of Indian companies. Barclays was second with $416.1 million. Axis helped sell R5,030 crore.

Deposits at banks rose 16.6% in the two weeks ended March 11 from a year earlier, while lending increased 23.2%, the latest data published by the central bank show. The average loan-to-deposit ratio rose to 72.2% in the fiscal year that ended March 31, 2010, compared with 53.6% a decade earlier. Because the banks loan-to-deposit ratios are stressed, they need to raise money overseas, UBSs Mahajan said.