Market experts indicated that in current times, raising funds within the Reserve Bank of India’s (RBI) prescribed all-in-cost cap of Libor plus 450 basis points for external commercial borrowing could be a challenge as foreign investors could ask for higher coupons due to the risk-off sentiment prevailing in the market.
Rural Electrification Corporation (REC) is evaluating the US dollar bond market for a potential fund-raise after the Covid-19 crisis put a brake on foreign currency fund raising by Indian issuers since March this year, according to information provided by sources.
“The firm is eyeing to raise between $300-500 million from the US dollar bond market via three-year paper. REC is believed to have done a call with investors this week to assess the market situation as they could likely be the first issuer out of India to hit the USD bond market after the Covid-19 led halt. One will have to wait and watch,” a source said.
Sources further told FE that REC was in reasonably advanced stages of hitting the US dollar bond market before the Covid-19 crisis emerged. It is interesting to note that the firm had recently tried raising funds from the domestic rupee bond market. Sources said the firm withdrew its plan to raise funds via three-year and five-year paper due to higher coupon demand by investors. FE could not independently verify the same.
Market experts indicated that in current times, raising funds within the Reserve Bank of India’s (RBI) prescribed all-in-cost cap of Libor plus 450 basis points for external commercial borrowing could be a challenge as foreign investors could ask for higher coupons due to the risk-off sentiment prevailing in the market. ‘Everyone is trying to preserve cash. US dollar bond market is not quite open towards Asia as of now. We saw only a few deals out of China in recent times,’ said an expert.
In the first two months of 2020, abundant liquidity available across the globe, fresh allocations at the beginning of the year and a fall in the US treasury yields had helped Indian issuers rush to the overseas bond market where costs were down. Indian firms and banks raised a whopping $7 billion-plus from the foreign currency (FCY) bond market this year, according to market sources.
Exim Bank, and Adani Electricity Mumbai raised a billion dollar each this year from the FCY bond market. Other entities that hit the overseas bond market this year include Manappuram Finance, Shriram Transport, Future Retail, Power Finance Corporation, IRFC, among others.