Indian companies and banks have raised around $8.4 billion via offshore bond issuances in 2015 so far, about half the $16 billion mopped up in the corresponding period in 2014. Given interest rates locally have remained elevated for most of the year, the numbers suggest not too many corporates nor banks have needed to borrow whether for use in the overseas or in the home market. The last issuance was that of Reliance Industries (RIL) which priced its $225-million bond issue at 2.512% in mid-August. In 2014, the total borrowings were of the order of $18.6 billion.
Kaustubh Kulkarni, managing director and head of debt capital markets, South Asia at Standard Chartered, points out that right now most borrowers are tapping the market to primarily to refinance loans rather than to fund new ventures. Therefore, if there’s no urgency, they’re willing to wait till the market settles down. “Issuers are extremely price conscious and don’t want to rush to the markets during times of volatility,” Kulkarni explains.
While FE has not been able to confirm media reports, Power Finance Corporation (PFC) and State Bank of India were among those looking to tap the overseas markets in the last two months with PFC having commenced road shows for its issuance. Over the past couple of years, Indian banks and companies have been able to pick up money at attractive rates abroad with spreads tightening by 60-70 basis in 2014 points over 2013. ICICI Bank, for instance, picked up $250 million in 2014 at 185 basis points over the five-year US treasury yield, the smallest spread since 2007. Spreads compressed further this year and in early August this year, the bank raised $500 million at 160 basis points over the five-year treasury.
Investment bankers point out that given the rupee has depreciated somewhat and that hedging costs remain high at 6-7%, the companies that wished to deploy the funds locally would have found it expensive to do so. That apart, as Manoj Rane, managing director and head of global markets and treasury, BNP Paribas India, points out, there hasn’t been much cross-border M&A activity either corporates haven’t really needed to borrow.
While some companies may have borrowed the volatility in bond markets overseas resulting from the meltdown in the Chinese equity markets, the devaluation of the renminbi and uncertainty surrounding the interest rate increase by the US Federal Reserve kept them away. Since the start of September, the yield on the ten-year US Treasury yield—used as a benchmark to price offshore bonds—has moved between 1.99% and 2.29%. “The fact that the US Treasury yields have fluctuated by 30 basis points over the last month or so indicates uncertainty resulting from uncertainty over the Fed rate hike,” Rane said.
Among the biggest issuances in 2015 have been those of RIL which picked up $1 billion on January 21, 2015, at a coupon rate of 4.125% at a tenure of 10 years. Bharti Airtel also mopped up $1 billion in early June at a coupon rate of 4.375%, again for a tenure of 10 years.