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Business News/ Companies / News/  Adani Transmission latest to tap offshore bonds as investor interest revives
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Adani Transmission latest to tap offshore bonds as investor interest revives

Adani Transmission's bond issue would be the third this month by an Indian company in the offshore market

The concept of masala bonds was first spelt out by the RBI in April 2015, following which it issued guidelines for the securities in September. Photo: Priyanka Parashar/MintPremium
The concept of masala bonds was first spelt out by the RBI in April 2015, following which it issued guidelines for the securities in September. Photo: Priyanka Parashar/Mint

Mumbai: With renewed interest in emerging-market debt, the appetite for offshore dollar bonds of Indian companies is slowly making a comeback, even for riskier high-yielding corporate paper.

The latest issuer to scout for dollars through a bond sale is Gautam Adani-controlled Adani Transmission Ltd (ATL).

The firm plans to raise about $400 million through a dollar bond issue and has mandated seven banks to market it to offshore investors, according to two bankers aware of the development.

Adani Transmission’s bond issue would be the third this month by an Indian company in the offshore market.

Adani Transmission’s bonds are rated BBB- by Fitch Ratings, the lowest investment grade, on par with the sovereign rating of India. Its domestic debt is rated AA+, a notch down from the top rating of AAA.

“The road shows have begun, and the issue is likely to be priced in a couple of days," said a banker associated with the issue, requesting anonymity.

Adani Transmission had earlier planned to issue rupee-denominated bonds, also called masala bonds, to investors and had mandated banks to market them. But the company’s privately placed masala bonds with Credit Suisse AG at a coupon of 9.10% after initial talks with investors did not elicit a strong response to its bonds, said the banker quoted above.

A spokesman for Adani Transmission declined to comment on the development.

ONGC Videsh Ltd (OVL), the offshore arm of the state-owned ONGC Ltd, raised $1 billion a week ago through a two-tranche bond issue. OVL priced its five-year bonds at 175 basis points above the US treasury and 10-year paper at 220 basis points above comparable treasuries.

The initial guidance was 195 basis points above treasuries for the five-year bond and 235 basis points for the 10-year.

One basis point is one-hundredth of a percentage point.

Glenmark Pharmaceuticals Ltd priced its five-year bonds at 4.45% and raised $200 million through the sale.

The fact that issuers are able to borrow at lower than the indicative pricing reflects the interest of investors.

To be fair, issuances are still sporadic. “The pipeline for dollar bond issues is not strong right now, but yes, companies are talking about exploring this route," said a bond arranger at a US bank, requesting anonymity.

According to data from financial markets platform Dealogic, Indian bond issuances in the offshore market totaled $2.7 billion between January and June, down 59% from corresponding period a year ago. This is the lowest issuance volume since 2012.

While the demand for dollar bonds stems from copious global liquidity and very few avenues available for investors to earn amid negative interest rates in advanced economies such as Japan, Indian companies would prefer to raise funds through rupee-denominated bonds to avoid hedging dollars.

“There is appetite for both dollar bonds and masala bonds. The masala bond is more favourable to the issuer both from a baseline yield perspective as well from the withholding tax rate perspective," said Utpal Oza, managing director and head of investment banking at Nomura Financial Advisory and Securities (India) Pvt. Ltd.

Given that masala bonds tend to be cheaper than dollar borrowings as the investor bears the hedging cost, a number of Indian companies are looking to access this market, Oza added.

Masala bonds are cheaper than onshore bonds as well. For instance, Adani Transmission’s masala bonds have a yield of 9.10% while the company had to pay 10.25% for an onshore rupee bond issue.

“At the same time, given the global macroeconomic environment, investors are hungry for yield. My sense is that initially it is the AAA and AA credits that will tap the market first and then will be followed by the lower rated counterparts," said Oza.

National Highways Authority of India is planning to raise $500-$750 million through masala bonds, Mint reported on 21 July.

To be sure, masala bonds were not a hit right from the start. Since last year, when the guidelines for the masala bonds were unveiled, a number of companies have tested the waters. The list includes Housing Development Finance Corporation Ltd (HDFC), Indian Railway Finance Corp. Ltd, NTPC Ltd, Shriram Transport Finance Co. Ltd and Dewan Housing Finance Corp. Ltd.

However, it took HDFC a second attempt to market masala bonds before finally raising 3,000 crore earlier this month.

Maulik Pathak contributed to this story.

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Published: 26 Jul 2016, 01:40 PM IST
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