After mopping up $10 billion in 2012 and $6.5 billion in the first three months of 2013, India Inc is set to raise another $2.5 billion over the next two weeks from overseas bond markets. While the country?s largest bank State Bank of India (SBI) is expected to raise $1 billion by selling 5-year dollar-denominated bonds on Thursday, this will be followed by Union Bank of India, looking for at least $500 million, according to investment bankers. ONGC Videsh, the overseas unit of the country?s biggest energy explorer, will hit the market for $1 billion soon thereafter.
?The international markets are still very buoyant, and Indian spreads have been tightening this year as the news flow from India has been more positive than negative,? said Jujhar Singh, managing director, capital markets, Standard Chartered Bank.
?Although there are concerns about the Indian economy, the amount of Indian paper being issued is relatively small and so investors are willing to take a risk,? said a leading investment banker.
Investment bankers expect domestic companies to raise about $17-20 billion from the overseas route, nearly double the total amount raised last year. This year, first-time issuers like HDFC Bank and Bharti Airtel have garnered huge interest for their overseas issues and investment bankers say at least two to three more first times issuers from India is expected this year.
While most banks and companies are likely to use the funds to lend overseas, bankers say the lower withholding tax of 5%, down from the earlier 20%, would make it affordable for borrowers to bring the money back home. ?Even after accounting for the cost of hedging, it still makes sense to borrow overseas because the spreads are fine and the 5% withholding tax is competitive,? he said. Investment bankers said till the time quantitative easing programme in the US continues, the demand for Asian debt would remain strong and bankers do not see the pausing of this programme any time soon.
Between January 2013 and now, 10 companies, including ICICI Bank, PowerGrid, Tata Communications, Reliance Industries, Bank of India, Suzlon Energy and IDBI Bank have raised double the funds from this route than Indian companies did in the same period last year. From January 2012 to December 2012, Indian companies had raised $9.8 billion. The fund raised through this route in 2013 was 50% higher than investment bankers had expected in January when Exim Bank raised $750 billion at 4.119% and attracted subscriptions worth $6.4 billion from 263 investors across the world.
Total funds raised in the Asian market through overseas bond issues between January and March was about $40 billion, out of which Chinese companies raised $8 billion, the most by any Asian country. Indian companies that raised funds from the overseas market through bond issues have been able to do so at the lowest coupon ever.
This year, the spreads for Indian dollar bonds have tightened 125-175 basis points, compared with last year. This has happened due to excess liquidity in the market as policy makers since 2009 from the US, Europe and Asia reacted to the deepest financial crisis since the Great Depression and pumped unprecedented amounts of money into the global economy and suppressing interest rates at record lows.