Indian companies are selling record amounts of debt in currencies from China’s yuan to the Singapore dollar, reining in interest costs and tapping growing wealth in a region with more millionaires than North America.
ICICI Bank Ltd sold 500 million yuan (around Rs.423 crore today) of 2015 bonds this month in Hong Kong at 4.9%. That took this year’s issuance from India in Asia-Pacific currencies other than the rupee to $754 million (around Rs.40,112 crore today), 83% more than in all of 2011. India’s third biggest lender by market value issued rupee and dollar notes due 2018 at 9.2% and 4.7%, respectively, this year.
More Indian borrowers are entering Asia’s local-currency debt markets, seeking new investors as the region’s growing affluence fuels demand for higher yields than available in developed markets. The number of individuals in Asia-Pacific with investable wealth of $1 million to $5 million climbed 1.9% to 3.08 million in 2011, according to a 19 September report by RBC Wealth Management and Cap Gemini SA.
Companies are able to attract new investors by selling bonds in Asian currencies, Jujhar Singh, Singapore-based managing director of debt capital markets for South Asia at Standard Chartered Plc., the largest arranger of Indian debt in Asia-Pacific currencies, said in an interview on 17 September. It’s been cost-effective for issuers because they have been able to price within the yields on their dollar bonds.
Debt sales rebound
Foreign-currency debt issuance by Indian firms surged to $4.6 billion so far this quarter from $140 million in the three months ended June as the central bank held the highest interest rates among major Asian economies to curb inflation. Governor Duvvuri Subbarao kept the repurchase rate at 8% on 17 September. Similar rates are at 3% in China and South Korea.
Overseas bond sales may get a further boost after India cut a tax on local firms’ overseas borrowings last week, boosting efforts to revive investment inflows. A levy on interest earned by global investors in foreign-currency bonds issued by Indian companies, and on interest paid for overseas loans, was reduced to 5% from 20%, the finance ministry said in a statement in New Delhi on 21 September. The cut will be applicable for three years, effective 1 July 2012.
State-owned IDBI Bank Ltd sold S$250 million (around Rs.1,088 crore today) of three-year securities last month at 3.65%, according to data compiled by Bloomberg. The Mumbai-based lender priced 5 1/2-year dollar notes at 4.375% last week.
‘Opportunity to diversify’
Export-Import Bank of India raised the equivalent of $282 million this year in Australian and Singapore dollars and the yen. The state-controlled trade finance lender is the largest Indian borrower of Asia-Pacific currencies in 2012, according to data compiled by Bloomberg. ICICI Bank took in $128 million this year in three offerings of Dim Sum bonds, or yuan notes traded in Hong Kong, the data show.
Securities denominated in Asia-Pacific currencies accounted for 11% of the $7.1 billion in overseas offerings by Indian companies in 2012, the highest proportion in four years, according to data compiled by Bloomberg.
Asian currencies offer an opportunity to diversify to new investors, David Rasquinha, a Mumbai-based executive director at Export-Import Bank, said in a phone interview on 18 September.
India’s relatively fast economic growth is fuelling demand from regional investors for bonds issued by domestic companies, according to Axis Bank Ltd, this year’s top arranger of rupee denominated debt sales. Asia’s third largest economy expanded 5.5% in the second quarter from a year earlier, compared with gains of 2.3% and 3.2% in the US and Japan, respectively, and a 0.5% contraction in Europe.
Appetite for emerging-market assets is also picking up as policy makers in the world’s largest economies prepare to pump money into the financial markets to spur growth.
The Bank of Japan expanded its asset-purchase fund by 10 trillion yen (around Rs.6.8 trillion today) to 55 trillion yen on 19 September, less than a week after the Federal Reserve announced a third round of debt buying. The European Central bank unveiled an unlimited bond-purchase programme this month to reduce borrowing costs for struggling euro-area nations.
There is considerable liquidity in the global markets, chasing high-yielding emerging-market assets, Parthasarathi Mukherjee, Mumbai-based president for treasury and international banking at Axis Bank, said in an interview on 18 September. There is a comfort in buying Indian bonds as the economic growth here is higher than many other parts of Asia and the world.
International investors are also increasing holdings of rupee-denominated government and corporate bonds. They poured $5 billion into local-currency notes so far in 2012, raising holdings to $31.1 billion on 20 September, according to the latest data from the Securities and Exchange Board of India.
Ten-year sovereign bonds yield 8.15% in India, compared with 3.48% in China, 5.96% in Indonesia, 1.74% in the US and 0.78% in Japan, according to data compiled by Bloomberg. The extra amount investors receive on the Indian notes over US Treasuries has increased to 641 basis points, or 6.41 percentage points, from this year’s low of 601 in March.
The yield on the benchmark 8.15% government note due June 2022 fell one basis point to 8.15% on Monday, according to the central bank’s trading system. Rupee-denominated sovereign notes returned 6.9%, the best performance among Asia’s 10 biggest markets this year, HSBC Holdings Plc. indexes show.
Indian companies may still prefer the dollar debt market for large and longer-term borrowings, according to Rajiv Nayar, Mumbai-based head of capital markets origination at the Indian unit of Citigroup Inc.’s global markets division.
‘Market of choice’
The dollar bond market will remain the market of choice for Indian issuers, Nayar said in a telephone interview on 20 September. The dollar markets remain by far the world’s largest pool of capital and liquidity.
Companies can issue in large size and for long tenors in the US markets that aren’t available in Singapore, renminbi or other local-currency markets.
India’s rupee rallied 1.7% in Mumbai on 21 September after the government announced the reduction in the withholding tax, data compiled by Bloomberg show. It gained a further 0.4% to 53.2750 per dollar on Monday. The rupee is still the worst performer among Asia’s 11 most-active currencies in the past year against dollar, having declined 10%.
Credit-default swaps on State Bank of India, which investors consider a proxy for the sovereign, fell 73 basis points this month to 267, poised for the biggest monthly drop since October, according to data provider CMA.
The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements, and a drop indicates improving perceptions of creditworthiness.
IDBI Bank’s Singapore dollar bonds traded at 3.49% on Monday, according to HSBC prices. Its dollar notes yielded 4.21%, according to prices from the Australia and New Zealand Banking Group Ltd.
There are more investors who are allocating funds to Indian debt out of Asia, Prabal Banerji, chief financial officer in Ahmedabad, western India at Adani Power Ltd said in an interview on 18 September. The trend for companies to shift from the dollar to Asian currencies is picking up.
Sarah McDonald in Sydney contributed to this story. Bloomberg