Seven companies led by Tata Motors and Tata Steel together raised close to USD 4 billion this year, by selling high yielding bonds or below investment grade debt to overseas investors, taking overall forex debt raising by domestic corporates to below a tad USD 15 billion.
These high yielding bonds, which is a euphemism for sub-investment grade or junk bonds were sold at coupon rates ranging from 4.125 per cent (Motherson Sumi Systems) to 8.785 per cent (Rolta).
Yet these companies can save around two to three percentage points on interest cost, while an investment grade company can gain up to 6 per cent on interest, making forex debt raising an attractive proposition for domestic firms which have to pay around 12 per cent to 15 per cent in the domestic market, according to investment bankers.
In the bond market parlance, 'B-' or 'BB' rated bonds are referred to as "junk bonds" or sub-investment grade debt, and normally attract higher premium or high coupon rates. The coupon rate is the yield that the bond would pay on maturity.
Most of these bonds are rated sub-investment grade by the global rating agency Fitch.
The chart is led by Tata Steel which sold USD 1.5 billion worth of bonds to overseas investors in a dual tranche deal late last month, making its debut US dollar bond sale. According to data collated by Deutsche Bank India, the demand for high yielding bonds from the country is rising.
"There is huge optimism about the country, and a confluence of liquidity, low rates and tight credit spreads presents an unprecedented opportunity for India Incorporated," Deutsche Bank India's Head of Corporate Finance Amit Bordia said.
The biggest deals came last month, when on a single day (July 24), Tata Steel, GreenKo, and Global Cloud Xchange, together raised over USD 2.4 billion.
This year alone, seven sub-investment grade companies raised funds abroad worth USD 3.78 billion, signalling rising investor appetite for Indian paper, Deutsche Bank India said.
While the Tata Steel issue was priced at 4.85 per cent coupon rate for 5.5-year money, the 10-year issue was sold at a coupon rate of 5.95 per cent. The second biggest junk bond sale came from auto-component maker Motherson Sumi Systems which sold Euro bonds worth USD 682 million late June at 4.125 per cent.
The third biggest issue came from the Hyderabad-based renewable energy producer GreenKo which raised USD 550 million