Indian banks that had been seeking to raise funds through overseas bond market have shelved those plans as yields in global bond markets have soared since the US Federal Reserve announced its intention to taper its quantitative easing programme.
Canara Bank had planned to raise $1 billion through dollar-denominated bond, while Syndicate Bank and Indian Overseas Bank had plans to raise $500 million each.
?Now we are not looking at it. We are not pursuing this route as yields have climbed and investor interest is also not there at the moment,? SK Jain, CMD of Syndicate Bank, told FE.
Canara Bank and Syndicate Bank were expected to open their books in the first week of June as they had completed their roadshows in the last week of May. Then came Fed chairman Ben Bernanke?s announcement that a decision to cut the current pace of bond purchases of $85 billion every month may be taken at its ?next few meetings?, which turned the markets volatile. As FE had reported, both banks had postponed their issues for a later date at the time. Now these issues have been postponed indefinitely.
?There is nothing right now in the overseas market,? said an investment banker who was involved in most overseas bond issuances by Indian banks this year.
“Pricing of bonds will not go back to what we saw earlier this year. Indian paper is facing two problems right now; one is coming from the US in the form of tapering but a lot is also about the negative perception about India, which has not been able to resolve its supply side problems,? he added. About 16 Indian companies had raised a record $11 billion from the overseas bond market in 2013 before May 22 at record low coupons as excess liquidity had driven US yields down sharply.
Since Bernanke?s statement, yields have climbed to over two-year highs with the 10-year US treasury yield climbing 130 basis points to 2.91%. This has made fund raising more expensive for Indian companies as dollar-denominated bonds are priced in reference to US treasuries and, hence, a rise in treasury yields means a higher cost of borrowing for issuers. Looking at the spreads, these banks are ready to wait till next year before raising funds from the overseas bond market.
“We will wait for the market to stabilise and if it does not stabilise this year then we will wait until next year,” M Narendra, CMD of IOB, said.
Even the most active Indian player in the overseas market ? Exim Bank ? reckons that it is best to stay on the sidelines right now. ?Everyone is right now trying to understand what Bernanke means by tapering. Everybody will be sitting on their hands till there is some stability in the market,? said David Rasquinha, executive director at Exim Bank.
