With the Exim Bank having mopped up $750 million through finely priced 10-year dollar bonds, banks, PSUs and private sector firms are lining up to tap the overseas markets for as much as $4 billion in the next few months. “Although there are concerns about the Indian economy, the amount of Indian paper being issued is relatively small and so investors are willing to take a risk,” said Saradhi Rajan, managing director and head, debt capital markets, at Bank of America.
The scarcity value has helped Exim Bank price its bonds at at 220 basis points over the US treasury — running roughly at 1.895% — to yield 4.119% and attract subscriptions worth $6.4 billion from 263 investors across the world. Six months earlier, the state-owned bank had raised funds through five-year bonds at 348 bps above the US treasury, then at around 1.5117%.
“The 4% coupon is the lowest ever paid by any Indian issuer for a 10-year dollar bond,” said Jujhar Singh, managing director, capital markets, Standard Chartered.
Power Grid Corporation is expected to raise $500 million over the next few days while Indian Infrastructure Finance Company and Indian Oil Corporation could hit the markets soon as could Power Financing Corporation, Rural Electrification Corporation and large nationalised banks.
While most banks and companies are likely to use the funds to lend overseas, Rajan explained that the lower withholding tax of 5%, down from the earlier 20%, would make it affordable for borrowers to bring the money back home. “Even after accounting for the cost of hedging, it still makes sense to borrow overseas because the spreads are fine and the 5% withholding tax is competitive,” he said.
Though technically Asian investors may have accounted for 76% of the demand, these included several US funds operating out of the region. About 22% of the subscription came in from Europe.
The bulk of the buyers are primarily plain-vanilla debt funds and many of them are expected to hold the paper till maturity though the bonds are tradeable.
Following the Exim issuance, other bonds trading in the secondary market got a lift. ICICI Bank’s bonds maturing in 2018 were trading 10 bps lower, State Bank of India’s bonds maturing in 2017 were trading 3bps lower, while NTPC paper changed hands at a yield 5 bps lower. “In July when SBI raised five-year money, the issue was priced at treasury plus 375 basis points; today the bonds