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Business News/ Industry / Many Indian firms make debut in international bond market in 2013
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Many Indian firms make debut in international bond market in 2013

Move led by low interest rates, rising investor appetite and a strategy to diversify exposures into different currencies

Till 5 December, local companies have raised about $14.4 billion through foreign bonds against $9.8 billion in the first 11 months of last year. Photo: MintPremium
Till 5 December, local companies have raised about $14.4 billion through foreign bonds against $9.8 billion in the first 11 months of last year. Photo: Mint

Mumbai: Lower interest rates, increasing investor appetite for Indian papers and a strategy to diversify exposures into different currencies have prompted many Indian companies to make their debut in international bond market in 2013.

Indian companies that ventured into the international bond market for the first time raised over $4.9 billion through bonds in 2013, more than three times of what they had raised in 2012, some $1.5 billion, according to Bloomberg data. Most deals took place in the first five months when liquidity was easy and rates were attractive.

Till 5 December, local companies have raised about $14.4 billion through foreign bonds against $9.8 billion in the first 11 months of last year.

Bharti Airtel Ltd launched its first international bond issue in March, raising $1 billion. Again, in December, it raised €750 million through euro bonds—the first such offering by any telecom firm in emerging markets. ONGC Videsh Ltd, Bharat Petroleum Corp. Ltd, Rolta Ltd, Suzlon Ltd and Tata International Ltd have also floated overseas bonds for the first time this year.

Investment bankers say the quantitative easing by the US Federal Reserve led to flow of money and low interest, prompting many Indian firms to tap the overseas market with bond offerings.

“Even now, the international debt markets are easily accessible to large Indian corporates who are also widening currencies of issuance to tap a wider investor base," said Amit Bordia, head, corporate finance, Deutsche Bank India. “Bharti raising funds using euro bonds exemplifies this."

Investor confidence in Indian firms is evident from the subscriptions received and attractive pricing of the bonds.

“In terms of pricing, new records were established in the first half (of 2013). Power Grid issued 10-year US dollar bonds at the lowest coupon ever for an Indian issuer," said Jujhar Singh, managing director and head of debt capital market for South Asia at Standard Chartered Bank Plc.

Power Grid raised $500 million at a coupon of 3.875% in January. Although other Indian firms have issued bonds at lower rates for smaller tenure in niche markets like Switzerland and Singapore, no other company has done so in the US, the world’s largest bond market, for a long-term issue. The Power Grid issue also received the highest oversubscription ever by any Indian firm in the US market.

“We are open to a market where we can access cheaper funds whether it is domestic or international," said R.T. Agarwal, director, finance, at Power Grid Corp. of India Ltd. “When we went for foreign currency bonds in January, the 10-year US treasury rate was on lower side and the currency was not very volatile."

The second half of the year saw a slowdown in such issues after the US Fed on 22 May indicated tapering of its $85 billion bond-buying programme, leading to rise in interest rates. Despite the increase in coupon, tapping funds overseas remains a cheaper option, especially for those who use money for overseas operations as the high cost of foreign exposure hedging does not impact the cost, bankers say.

Indian companies can raise overseas money at 3.25 percentage points over London Interbank Offered Rate, or Libor. On top of that, the hedging cost works out around 8.9%, taking the total cost at around 12.24%. In contrast, the cost of raising money locally for a triple-A rated company is around 11%. But the companies with overseas subsidiaries have a natural hedge and the cost of borrowing overseas is much cheaper for them than raising money onshore.

Firms are now tapping different currencies to achieve price competitiveness instead of issuing dollar-denominated bonds, Bordia of Deutsche Bank said.

Indian firms raised about $9.8 billion till July through dollar-denominated bonds, according to Dealogic, a data provider, but many of them diversified in the second half of the year.

In March, the Export-Import Bank of India (Exim Bank) was the first Indian borrower to tap the Australian dollar denominated-bond with a A$200 million issue. Exim Bank was also the first issuer to enter Uridashi bond market, a bond denominated in a foreign currency sold directly to Japanese retail investors. In April, it raised around $124 million through an Uridashi bond for three years, carrying a 7.74% coupon.

“We are agnostic to market, currency or instrument as long as the swap window is attractive for converting into floating dollars. Varying the markets and currency also help diversify our funding avenue and investor base," said David Rasquinha, an executive director of Exim Bank, adding that the bank will continue to tap the overseas bond market as its dollar loan book is growing.

Singh of Standard Chartered said Indian companies are raising money from international bond markets beyond dollar and across multiple currencies for diversifying the investor base. Besides, in different geographies, the minimum size of a bond issue is different.

For instance, while the benchmark size of US dollar Reg S bond—issued to non-US investors—is $350 million, minimum benchmark size for Chinese offshore Yuan bonds is CNH 500million and for Singapore dollar bonds is SGD 100 million.

“For companies such as Reliance Industries (Ltd) which have issued bonds in the US dollar market regularly, it is natural to diversify liability profile and investor base by attempting new structures or avenues of liquidity," said Manmohan Singh, head of debt capital markets for India and Indonesia at Royal Bank of Scotland Plc.

Reliance Industries Ltd raised $800 million through a senior perpetual bond in the US market in January.

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Published: 10 Dec 2013, 12:00 AM IST
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