BackIndian companies line up to raise funds in Singapore
Availability of investable surplus, easy access, diversified investor base are attracting firms looking to raise money at cheaper rates
Premium(AFP)
Mumbai: Easy access and a diversified investor base in the Singapore bond market is increasingly attracting Indian firms looking to raise money at cheaper rates. They have raised S$1 billion this year, already 30% higher than the whole of 2012, according to Dealogic, the global deal tracker.
Recently, four Tata companies, including the marquee Tata Motors Ltd, raised $624 million in Singapore dollar-denominated bonds. ICICI Bank Ltd, India’s largest private sector lender by assets, raised $183 million in January, and ABJA Investment Co Pte Ltd raised $242 million in April.
The availability of investable surplus and the lower costs of raising capital are the key reasons attracting Indian firms to Singapore. ICICI Bank raised seven-year money at just 3.65%. This compares with the coupon for seven-year corporate bonds of 8.29% in India.
To be sure, if the cost of hedging the foreign exposure is added, the cost of fund-raising in India is still lower than Singapore, experts say. However, companies raising money in Singapore intend to deploy it in their overseas operations and thus do not need to hedge it.
“At present, raising money through rupee-denominated bonds is cheaper, compared to raising funds overseas if the exposure is fully hedged," said Randhir Singh, India head, financing, Deutsche Bank India. “As most of the funds raised through S$ bonds is used for overseas operations, a large portion of these liabilities are left unhedged to take the cost advantage."
Currently, the hedging cost, or the premium paid to insure against currency depreciation, is around 6.5%.
Investment bankers attribute this trend of heading to Singapore on the availability of lower coupons in the Singapore dollar bond market to improved perception about Indian firms and easing global liquidity conditions.
“The Singapore dollar bond market is becoming very attractive for Indian issuers because investors there have started looking at Indian corporates as an attractive investment proposition," said Brijesh Mehra, head of international banking, India, at Royal Bank of Scotland Group Plc.
Tata Motors’ inaugural five-year S$ bond issued in May was received well and was oversubscribed five times, according to Rajiv Nayar, head of capital markets origination at Citigroup Inc.’s India unit.
International investors are now comfortable about the economic prospects of India, said Jujhar Singh, managing director, head of debt capital markets for South Asia at Standard Chartered Plc. “There are lesser concerns around a credit rating downgrade and positive sentiment around various government reform initiatives," Singh said. “There is a lot of interest for Indian bonds."
Standard and Poor’s (S&P’s) Ratings Services on 17 May warned there was a one-in-three chance of India’s sovereign rating being downgraded to junk status in the next 12 months. It, however, reaffirmed India’s “BBB minus" long-term sovereign rating, the lowest investment grade, with a negative outlook.
Nayar of Citi said investors in the Singapore bond market give more weightage to the underlying credit as opposed to credit ratings.
The investor hub in Singapore is also open to subscribing to issues that have low to zero credit rating.
“Other advantages like possibility of undertaking a smaller deal size in a public format, that is potentially unrated, a short roadshow window, simpler regulations are some reasons for a vast number of Indian firms to look at the Singapore market," said Maneesh Malhotra, managing director and head, debt finance, India, at Hongkong and Shanghai Banking Corp Ltd.
Companies also prefer raising money in Singapore over the US because implied costs are slightly cheaper for smaller issues. A lower base rate and tighter rates in the secondary market are making it attractive for firms to sell bonds in Singapore.
“Given the liquidity and lower Singapore dollar base rates, the fixed coupon for S$ bonds has been lower compared to US dollar issuance," said Singh of Deutsche Bank.
The benchmark size of issue for the Singapore bond market is $200 million to $400 million, compared with the benchmark $500 million in the US. The ease in issuing bonds with shorter tenures also makes Singapore dollar bonds popular with Indian firms.
“We have seen Indian firms issue in tenures across the curve (3-10 years)," Nayar said. “Looking at all issuances in the Singapore dollar bond market this year, issuers have a clear preference for the shorter end of the curve, with over 50% of the issuances in the three-year or five-year tenor buckets."
Singapore dollar bonds issued under the so-called Regulation S (RegS) format allow bond issuers to access a diversified investor base and receive a better response.
“Private banks are the dominant investor base in the Singapore dollar bond markets, with the rest comprising fund houses, real money investors and hedge funds," said Malhotra. RegS bonds are offered to non-US residents and qualified institutional buyers under an exception to US securities laws. Non-residents and qualified institutional buyers do not get the same legal protection as US retail clients do.
Bharti Airtel Ltd’s wholly owned subsidiary Bharti Airtel International (Netherlands) in March raised $1 billion in RegS bonds in the US. The 10-year paper was issued at 5.125%, according to the company’s website.
While most bond issues in Singapore are fully subscribed, companies have struggled to raise money on rare occasions.
“There is an active high-yield market overseas. Companies looking at issuing high-yield bonds need to have a relatively decent credit history and an acceptable future outlook," said Malhotra. “All high-yield deals are not a slam dunk."
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
