Spreads fall on Indian paper in overseas markets

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Mumbai | Published: June 15, 2015 12:58:12 AM

Indian banks and companies are able to pick up money cheaper in the overseas markets with spreads having tightened by 65-70 basis points...

One reason why there’s a good appetite for Indian paper from US investors, in particular, is the limited supply. Bankers say there aren’t enough Indian issuances, because the rules are tougher. (Reuters)One reason why there’s a good appetite for Indian paper from US investors, in particular, is the limited supply. Bankers say there aren’t enough Indian issuances, because the rules are tougher. (Reuters)

Indian banks and companies are able to pick up money cheaper in the overseas markets with spreads having tightened by 65-70 basis points over the past year; with the appetite for Indian paper strong and liquidity abundant, Bharti Airtel raised $1 billion via 10-year bonds at a spread of 210 basis points over the US Treasury yield — a fixed coupon of 4.375%. A year ago, the spread was 60 basis points lower; in 2014, the telco paid a spread of 270 points.

Manmohan Singh, head, debt capital markets at RBS, points out that over the last two years, spreads have compressed by 150-200 basis points. “We expect spreads to stay stable but coupons may go up with the rise in underlying treasury levels,” Singh observed.

While more companies and banks are toying with the idea of borrowing abroad, Randhir Singh, MD, India head, financing, Deutsche Bank, believes that overseas bond issuance volumes may exceed last year’s $18.6 billion, only if there is a significant pick-up in capital expenditure.

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Total issuances out of India have hit close to $7 billion so far in 2015. “Any relaxation in end use and pricing cap for external commercial borrowings can also result in increased volumes,” Singh added.

Last year, ICICI Bank had raised $250 million at 185 basis points over the five-year US treasury yield, the tightest spread since 2007. This year, Bank of India mopped up $750 million at a spread of 185 basis points over the five-year US treasury yield. State Bank of India (SBI) could be among those that venture out—India’s biggest lender would certainly look to pick up $1 billion, perhaps for a five-year term.

One reason why there’s a good appetite for Indian paper from US investors, in particular, is the limited supply. Bankers say there aren’t enough Indian issuances, because the rules are tougher.

Ashish Vaidya, ED and head, treasury, DBS Bank, believes that the fact that Indian paper is being attractively priced is indicative of the country’s improving credit profile. “Even if the Fed hikes interest rates, Indian paper could continue to be priced attractively, if the rupee remains fairly stable and there is not much of a disruption in the domestic market,” Vaidya said.

A large chunk of 66% of Bharti Airtel’s bond issue was allocated to investors in the US; the issue was one of the few 144A issuances out of India in 2015. A 144A issuance is one in which investors from the US can also participate. Most of the foreign currency bond issuances this year have been in the ‘Regulation S’ category that usually attracts investors from the Europe, Asia and the West Asia.

Strong bonds

* Spreads have tightened by 65-70 basis points over the past year
* Total issuances out of India by banks and companies have hit close to $7 billion so far in 2015
* There is a good appetite for Indian paper from US investors, in particular, due to the limited supply

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