BackNarendra Modi seen driving 40% jump in overseas borrowing
Indian companies are set to boost overseas borrowing in three years as optimism in govt's economic policies helps cut debt costs
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Mumbai: Indian companies are set to boost overseas borrowing by the most in three years as optimism in the government’s economic policies helps cut debt costs, according to the head of an Asian industry body.
“Foreign-currency loans will jump 40% from last year to $35 billion in 2014," according to Atul Sodhi, head of the Asia-Pacific Loan Market Association. Companies raised $15.5 billion in the first half, the most since the six months ended December 2011, according to data compiled by Bloomberg. Tata Steel Ltd and Indian Oil Corp. lead planned financing, after the average premium on non-rupee loans dropped to 171 basis points in January-June from 291 in the same period last year.
India’s economic expansion will rebound under new Prime Minister Narendra Modi to 5.4% in 2015 from near the slowest in a decade, according to the median estimate in a Bloomberg survey, as acquisitions by the nation’s companies more than doubled this year. The government’s budget unveiled last week stuck to plans for the narrowest fiscal deficit since 2008.
“Optimism that the new government will revive investment in the economy and work toward fiscal consolidation are positive indicators," said Sodhi, who is also the Hong Kong-based managing director and global loan syndication head at Credit Agricole CIB. “Indian markets are in a good spot now and this is having a positive impact on the sentiment toward Indian borrowers from international lenders."
Tata steel
Tata Steel, the nation’s biggest producer of the alloy, plans overseas funding of $3 billion to refinance debt taken to fund the acquisition of Corus Group Plc in 2007, three people familiar with the matter said last month. That would be the largest overseas loan by an Indian company in 2014, data compiled by Bloomberg show. State-owned explorer Oil & Natural Gas Corp. raised $2.5 billion this year.
International debt has become more attractive as swings in the Indian rupee declined to the lowest in almost three years after the Reserve Bank of India (RBI) raised interest rates and curbed gold imports. Three-month implied volatility, a gauge of exchange-rate movements used to price options, has slumped 410 basis points this year to 7.56%, according to data compiled by Bloomberg. The measure touched 7.52% on 13 June, the least since August 2011.
Rupee boost
“The rupee’s stability is beneficial," said Rajiv Datt, Indian Railway Finance Corp.’s New Delhi-based managing director. “With interest rates so benign overseas and elevated domestically, more and more Indian companies will look to tap international markets."
The yield on 10-year federal government notes declined six basis points to 8.77% this year, while the average yield on similar-maturity AAA rated corporate securities has slumped 46 basis points to 9.16%.
The rupee advanced 14.9% since 28 August, the day it touched a record low, making it the best rally in the Asia-Pacific region for the period. Credit-default swaps insuring the notes of State Bank of India, which some investor consider a proxy for the sovereign, against non-payment for five years fell 90 basis points this year to 190, according to data provider CMA.
“The finance unit of Asia’s oldest rail network plans to borrow $500 million through bonds and loans this year," Datt said.
Borrowing costs
Average costs on rupee-denominated loans exceeded rates on dollar borrowing by at least 8 percentage points in the first half amid monetary easing by the US Federal Reserve, according to data compiled by Bloomberg. RBI governor Raghuram Rajan has raised the repo rate three times to contain inflation since taking office in September.
The pick up in overseas syndicated loans is unlikely to continue this half as borrowers finish refinancing liabilities, according to Axis Bank Ltd., this year’s second-biggest arranger for all facilities.
“A lot of corporates are trying to take advantage of relatively low overseas rates," said Parthasarathi Mukherjee, the Mumbai-based president for large corporates and international business at Axis Bank in a telephone interview 11 July. “I do not think this momentum will continue."
About $5 billion of foreign-currency loans in India are either being marketed to banks or are in early-stage negotiations, according to people familiar with the matter and data compiled by Bloomberg. Some $61 billion of all-currency facilities have been signed in India over the past 12 months, the data show.
Appetite increases
Indian Oil, the nation’s biggest refiner, is seeking to raise $650 million, while billionaire Anil Agarwal’s Vedanta Resources Plc plans $500 million of debt, people familiar with the matter said. Power Finance Corp., an Indian lender to power projects, is seeking a five-year $250 million dollar loan, according to a person familiar with this facility said 11 July.
“Appetite for Indian borrowers has increased and we are seeing new investors and pools of liquidity emerging," John Corrin, Hong Kong-based global head of loan syndications at Australia & New Zealand Banking Group., said in a telephone interview 10 July. “We are looking at a robust pipeline for the rest of the year. The next leg for an uptick in loan demand may come from mid-sized companies looking to finance their capex offshore." Bloomberg
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