With an improved economic outlook whetting investor appetite for Indian credits and regulatory changes making...
With an improved economic outlook whetting investor appetite for Indian credits and regulatory changes making it easier for Indian companies to borrow in foreign currency, foreign currency bond issuances are expected to reach a record high this year.
According to a report by Moody’s Investors Service, cross-border bond issues from both Indian non-financial firms and financial institutions are likely to increase through to 2015.
Cross-border bond issues by non-financial companies for the 10 months from January-October 2014 reached $12.5 billion, surpassing the total $10.2 billion issued in 2013. The figure is expected to touch $13-14 billion for the whole year, said the report. The picture could be even rosier in 2015 if the cost of hedging exchange-rate risk declines.
Three sectors — oil and gas, metals and mining, and telecommunications — issued 67% and 76% of the foreign currency bonds from Indian non-financial corporates in 2013 and 2014, respectively.
“We expect oil and gas and metals and mining companies to continue driving the increase in issuance… We also expect an increase in issuance from pharmaceutical and information technology and business process outsourcing companies,” the report said.
Credit spreads on foreign currency bonds issued by Indian companies tightened between January and July. The tighter spreads allow more Indian companies to issue foreign currency bonds that comply with RBI regulations.
Also, a cut in withholding tax on interest payments to international investors and an increase in guarantees that Indian entities can provide for foreign currency debt issued by overseas subsidiaries were some of the enabling decisions taken by the government.