By James Fontanella-Khan in Mumbai
Indian lender Infrastructure Leasing & Financial Services is set to become the first Indian group to raise renminbi-denominated debt in Hong Kong, planning a three-year $100m dim sum bond early next month, people close to the matter said.
The move comes on the heels of the Indian government?s decision to allow domestic companies to raise debt in the Chinese currency, and Hong Kong is attractive as companies can raise funds there at about 70 per cent of the cost at home.
The size is small ? Indian companies can raise only up to $1bn overall in renminbi debt ? but important as it further highlights improving and strengthening trade ties between the world?s two fastest growing big economies. Industrial and Commercial Bank of China, the world?s largest bank by market capitalisation, last week opened its first Mumbai branch, as it aims to provide further credit support to Indian companies working with Chinese groups.
Trade between India and China has grown rapidly in the past decade. In 2010 bilateral trade reached $61.8bn, as China surpassed the US to become India?s largest trading partner, according to official data.
IL&FS?s issue also represents another milestone in the development of the offshore renminbi bond market. Over the past year multinationals such as McDonald?s, BP and Tesco issued renminbi-denominated debt in Hong Kong.
Bankers at foreign institutions in Mumbai told the Financial Times that scores of other Indian groups were planning to raise debt in the Chinese currency.
?IL&FS?s yuan bond will be a landmark deal that will significantly change the way Indian companies raise funds overseas … it will set a precedent that will be followed by many others,? said an Indian banker.
Samiran Chakraborty, Standard Chartered?s head of India research, said that China?s offshore renminbi market offered strong liquidity ? up more than six times over the past 18 months to about $90bn at the end of July 2011 ? and cheaper rates than India.
A top-rated Indian company would currently have to pay about 9.5 per cent for three-year money, after the country?s central bank raised interest rates for the 12th time since March 2010 to 8.25 per cent.
The interest rate hikes have pushed several Indian companies to raise funds abroad. Although the US dollar and Swiss Franc remained a preferred option for Indian groups, especially as the rupee has weakened against both currencies, the renminbi offers a strong alternative for companies that operate in or import from China.
Bankers said Indian power, infrastructure and real estate companies were most keen to raise renminbi debt, as they currently import much equipment from Chinese companies.
Some analysts warned of challenges for Indian companies seeking to raise renminbi debt, such as hedging currency risks. The Chinese currency is not fully convertible.
? The Financial Times Limited 2011