Indian companies may quadruple bond sales abroad this year after Standard & Poor’s raised its rating to investment grade, according to Deutsche Bank AG., the biggest arranger of foreign debt sales.
Borrowing in dollars, euros and yen may rise to between $8 billion (35,391 crores) and $13 billion for Indian companies and their units abroad, said Mark Leahy, head of Asian debt syndication for Deutsche Bank. They sold $2.97 billion in overseas securities last year.
ICICI Bank Ltd., Bank of Baroda Ltd. and Industrial Development Bank of India are planning to tap demand this year from international investors as Asia’s fourth-largest economy seeks to raise $320 billion to build roads, railways and power plants. Indian companies have $17.3 billion of bonds outstanding, according to the Bank for International Settlements.
Rs.Larger deals from more issuers sold into more markets have brought Indian credit firmly onto the agenda,’’ said Singapore-based Leahy. Rs.Following the upgrade, investors, many of who wanted to invest but could not, will start investing.’
Deutsche Bank managed $750.5 million of the securities sold by Indian companies overseas, ahead of $606 million by Barclays Capital.
Frankfurt-based Deutsche Bank last year, arranged a $300 million bond for State Bank of India, the country’s biggest bank by sales, and a total $300 million of securities for ICICI Bank.
Rs.Make a Difference’
S&P on 30 January raised India’s rating to BBB-, citing the country’s foreign-exchange reserves, prudent debt management and improving fiscal position. Investors who are restricted by fund regulations from buying high-yield, or high-risk securities, rated below BBB- by S&P and Baa3 by Moody’s Investors Service, can now buy Indian corporate bonds.
Moody’s increased its rating to India to investment grade in January 2004, followed by Fitch Ratings in August 2006. Moody’s rates India’s debt Baa2, the second-lowest investment grade, and Fitch ranks it BBB-, the bottom level that many investors can buy.
India needs to attract investors from different backgrounds to fund its economic expansion, said Michael Ganske, who manages $7 billion of emerging-market debt at Deka Investment GmbH in Frankfurt.
Rs.The S&P upgrade would make a difference to foreign investors,’ he said. ‘This is an important step because a lot of investors have limits regarding ratings. Now a lot of investors will start looking at this country.’
Companies are also saving money because of higher ratings.
Mumbai-based State Bank of India, one of the six banks raised to investment grade by S&P after the sovereign rating increase, lowered borrowing costs this month on a $300 million floating-rate note sale.
The bank paid 38 basis points, or 0.38 percentage point, above the London interbank offered rate for the debt, less than the half-percentage-point premium at a December sale of similar securities.
The amount of outstanding bonds by Indian companies at the end of September was the highest since 1993, according to the Basel-based BIS.
Indian companies, expanding abroad through acquisitions and overseas offices, need as much as $200 billion over the next five years, according to estimates by Moody’s.
Rs.Such developments require capital, including access to debt,’ said Chetan Modi, an analyst at Moody’s in Mumbai. Rs.The government is already heavily indebted and has its own targets for deficit reduction.’
Prime Minister Manmohan Singh in October, doubled the estimate of investment needed for roads, power plants and ports over the next five years help accelerate growth.
India’s gross domestic product may expand at a record 9.2 % in the year to 31 March, the Central Statistical Organisation in New Delhi said this month. The International Monetary Fund expects India to overtake South Korea this year to become Asia’s third-biggest economy.
Rules that restrict the amount of local-currency bonds that overseas funds can buy are also forcing companies to borrow abroad to access larger pools of cash.
Foreigners can only buy $1.5 billion of India’s corporate debt overall, according to the Securities & Exchange Board of India. The BIS estimates there are $16.8 billion of rupee- denominated bonds outstanding.
‘A ceiling has a negative connotation and dissuades investors,’ A.V. Rajwade, a member of the India central bank panel advising on rupee convertibility, said in a 6 February interview. India needs ‘to access a wider set of investors with a long-term horizon.’
Total savings of India’s households, companies and the government, which stood at about $260 billion on 31 March, aren’t enough to raise the infrastructure investment sought by the government. The nation loses 2 percentage points from annual growth because its power and transportation networks are inadequate, according to the finance ministry.
‘There’s a crying need to get foreign investors into our debt market,’ said V. Ravi Kumar, director of treasury in Mumbai at Infrastructure Development Finance Co., which arranges financing for roads and power projects. ‘The local financial system is inadequate to meet such capital requirements.’