Investment bankers are convinced Indian banks and companies should be able to tap the overseas bond markets for record dollar borrowings this year. The increase in the appetite of global investors after the elections, they say, should result in an amount of at least $15-16 billion coming their way; so far in 2014, $7.62 billion has been raised.
Given how spreads have contracted to their lowest levels since 2007, as seen from last week’s issue of bonds by ICICI Bank, borrowers are expected to cash in on the interest in Indian paper. Chinese firms have mopped up $24.21 billion in 2014 so far, according to Bloomberg data.
Hitendra Dave, MD & head, global markets, HSBC India, observes that the improved sentiment will result in many more issuances. “With more confidence in India, spreads have tightened by about 100-150 basis points over the last eight months and we should see more action in the next six months. Companies should be able to pick up close to $15 billion,” Dave told FE.
Last week, ICICI Bank raised $250 million at 185 basis points over five-year US treasury, the tightest spread ever since 2007. The spread for the same paper in the secondary market was 15 basis points higher.
Most of the borrowing will go towards refinancing costlier foreign exchange loans taken in earlier years. Bankers point out that while spreads on dollar borrowings have tightened, bringing the funds back to India doesn’t make sense since the cost of hedging hasn’t really come down. Typically, 60% of bond issues are picked by fixed-income funds while banks and private banks subscribe to 30%.
Insurance firms buy about 8-10% of the issue. Bankers point out that the ICICI Bank issue also attracted subscription from sovereign wealth funds — approximately 4% of the issue — and believe more SWFs might participate in future issues.
In 2013, companies mopped up $11.5 billion via dollar bonds with Bharti Airtel and HDFC Bank accessing the market for the first time. Bharti has tapped the market again this year. Bloomberg reports that since April, India raised $5.6 billion, the most since the first three months of 2013. In April, State Bank of India had borrowed $1.25 billion through 5.5-year and 10-year bonds that offered a rate of 240 bps and 265 bps over the benchmark US treasury. Last year in April, the lender had raised $1 billion at 255 bps plus treasury.