Overseas bond issuances may remain robust in ’15 despite Fed rate shadow

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Mumbai | Published: May 14, 2015 12:20:16 AM

Overseas bond issuances by Indian companies will likely remain robust in 2015, despite the possibility of a rate hike...

Overseas bond issuances by Indian companies will likely remain robust in 2015, despite the possibility of a rate hike by the US Federal Reserve, which tends to affect the pricing of bonds.

In 2014, overseas bond issuances from India crossed a record $18.6 billion. Some experts believe the figure could be even higher this time. “I think Indian companies may be able to raise more than $20 billion through offshore bond issuances in 2015,” Vijayan Subramani, MD, treasury & markets, India, DBS bank, had said in an interview with FE.

However, in 2014, interest rates in the US had remained benign, which, in turn, had kept the pricing attractive.

“From $8.4 billion in CY11, the issuance volume grew to $18.8 billion in CY14. This year, it’s been about $5.3 billion in the first four months against $5.6 billion in the same period last year. If the investment cycle returns, hopefully over the next 12 months, the market should show a healthy growth in volumes,” said  Ananth Narayan, regional head of financial markets, South Asia, Standard Chartered Bank.

The pricing of a bond in the overseas market is mostly linked to the US treasury yields, which, in turn, closely follow the interest rate regime in the country. And a bulk of the issuances from India has always been dollar-denominated.

If the Fed hikes the interest rate, treasury yields will also follow the same direction, in turn, leading to an increase in the yields on the Indian paper in an ideal scenario, although many factors, such as availability of emerging market papers, liquidity conditions and quality of issuer, also affect the pricing.


“The view that the US might hike rates in the future will encourage issuers at the margin to tap the markets earlier to take advantage of a low rate environment. Cost of financing is always a very important criteria and depends on treasury yields, credit spreads and forex hedging costs,” said Narayan.

Experts say a rate hike will not make much of a difference as there are many other factors that are taken into consideration when an issuer approaches the overseas market — these include how much amount they are able to raise and the ability to diversify the investor base, among other things. If anything, they believe it will only fast-track any fund-raising plans by Indian corporates and banks.

As far as sectoral dominance in Indian paper is concerned, the oil & gas sector has had the lion’s share in 2015. While RIL raised $1.75 billion through two separate issuances, BPCL mopped up $500 million recently. Thus, this sector alone has raised $2.25 billion of the total $5.3 billion in 2015.

Bond market participants, however, expect bank issuances to pick up, going ahead. “Despite the slow start, we expect bank issuances to pick up pace from this quarter on,” said Chetan Joshi, head of debt capital markets, India, HSBC.

Narayan also says that while in CY15 so far, the oil & gas sector has accounted for close to 42% of the activity, a pick-up could be expected in the issuances from banking and FIs, with more than $5 billion worth of FCY bonds maturing this year.

Bankers also believe that, this year, many corporates could enter the market for the first time. “This year, we will also see more debut issuances with a much wider spread across sectors and ratings,” said Manmohan Singh, head of debt capital market, India & South East Asia, RBS.

High-yield issuances from India are also assuming significance. The year 2015 has seen three high-yield deals, two of which were from issuers making their debut in the overseas market.

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