India tops Asia offshore bonds in first quarter

Hong Kong: India overtook South Korea as the biggest issuer of offshore bonds in Asia excluding Japan in the first quarter of this year, as banks sought funds to feed an economy growing at over 9%, Dealogic data shows.

But total offshore bond issuance from the region in the first quarter fell to $10.8 billion (Rs46,996 crore) from a year earlier $11.9 billion, as a wave of risk aversion doused investor appetite in March.

“India has had a huge quarter. In terms of financial institution group issuance it’s probably the most we’ve seen from any country," said Mark Leahy, Asian debt syndicate head at Deutsche Bank.

Borrowers from India sold dollar-, euro- and yen-denominated bonds worth $3.7 billion, compared with South Korea’s $3.4 billion.

In the first quarter of 2006, South Korea had topped the region with $3.3 billion of bond issues. Indian borrowers accounted for only $643 million.

Global investors are hungry to invest in Indian debt to gain exposure to one of the fastest growing economies in the world.

Indian banks, in particular, are keen to raise funds overseas because their lending is growing at an annual pace of 29% but deposits are growing at a more modest 20%.

“In a relatively lacklustre quarter for investment grade issuance, this is the standout story," Leahy said.

Deutsche Bank led the regional volume rankings with $2.7 billion worth of deals arranged, followed by Citigroup with $2.4 billion, UBS with $1.1 billion and Merrill Lynch with $1.1 billion, Dealogic said.

Strong Start

Until March, bond issuance had been running well ahead of the year earlier.

Funds raised in January and February combined were 36% greater than a year earlier at $8.56 billion as relatively low interest rates in Japan, Europe and the United States encouraged investors to seek higher yields in emerging markets.

The left yield spreads in February at 164 basis points over US Treasuries, its narrowest on record, according to JP Morgan’s Emerging Markets Bond Index Plus.

But a sell-off from the end of February hurt financial markets globally. Emerging markets assets, considered riskier investments, suffering the most.

“The other feature of note has been the lack of high yield supply but we should see more high yield issuance in the second quarter, some of it on the back of M&A activity," said Ashish Malhotra, Merrill Lynch regional head of debt syndicate.

Risk aversion has muted the supply of high-yield bonds, with only one company with a sub-investment rating selling bonds this quarter — China-focused GITI Tire made a $200 million issue in January.

In contrast, for all of 2006, high-yield corporate bond offers raised $8.4 billion, out of an aggregate $41.6 billion.

But bankers say things are looking up and activity in the post-Easter holiday period should be hectic.

“I think high yield in Asia has backed up and expect the first quarter deficit to be more than made up for in Q2. The pipeline is as strong as I’ve seen it," said Leahy.

Yield spreads in the JPMorgan index widened to 195 bps during the recent sell-off, but have since snapped back to 167 bps.

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