Home >Industry >Banking >Singapore bonds present new funding source for Indian firms

Mumbai: The Singapore dollar (S$) bond market has become the newest destination for Indian companies planning to raise money at cheaper rates.

In the last two months, three companies—IDBI Bank Ltd, Exim Bank Ltd and Indian Oil Corp. Ltd (IOC) have raised a total of around S$900 million ( 3,780 crore today).

IOC’s 10-year S$400 million bond issue, which closed on Friday, was oversubscribed by seven-and-half times. “Nearly 75% of the IOC issue was mopped up by the local investors," said Jujhar Singh, managing director and head of debt capital market for South Asia at Standard Chartered Bank, who helped IOC raise the money.

He reasoned that investors in Singapore are familiar with Indian issuers who have issued US dollar bonds in the recent past, “and thus show strong demand for S$ issuance by such Indian issuers".

The company had increased the size of the issue to S$400 million from S$300 million following the “overwhelming" response from investors, said P.K. Goyal, director (finance) at IOC, on Friday.

“This is the largest S$ offering by any foreign corporate issuer this year, the largest ever S$ issuance by an Indian issuer and the longest tenor senior note in the S$ market by a foreign issuer this year," said Goyal.

While the S$ bond market is a speck in comparison to the $37 trillion (around 1,931 trillion today) bond market at end of 2011, according to Securities Industry and Financial Markets Association, a US securities group, it is more accessible for companies that don’t want to raise a big amount through debt.

Investment bankers said if companies want to raise funds from investors in the US, they need to raise a minimum of $500 million—the benchmark issue size in the US bond market.

“On an average, most of the overseas issues in the S$ bond market are likely to be in the range of S$250-400 million," said Manmohan Singh, head of debt capital market for India, Indonesia and Sri Lanka at Royal Bank of Scotland. Issuances in S$ denominated bonds stand at S$ 27 billion in the current calendar year so far, up from S$ 21 billion last year.

Singh of Standard Chartered said bonds issued for less than $500 million become “illiquid" and “non-tradable" as pricing becomes difficult owing to the vast market size, with billions of dollars traded everyday, cornering nearly 40% of the global bond market.

Bankers said Indian companies will continue to eye markets where rates are cheap and liquidity in excess diversify their investor base.

“I will not be surprised if companies go beyond the regional currencies and try out the Australian and Canadian dollar," said Hitendra Dave, head of global markets (India) at the Hongkong and Shanghai Banking Corp. Ltd, adding that companies in India want to diversify into newer markets and currencies such as the S$ give them liquidity.

IDBI Bank, for instance, was the first Indian issuer to raise money in Chinese renminbi in November 2011, and became the first Indian issuer to enter the S$ bond market when it raised S$ 250 million in August 2012.

The bank said just like the Chinese currency, the S$ was also more suitable to raise small tranches of cash. The bank swaps the funds into US dollars before on-lending them to companies abroad, so the rates have to be cheaper even after the swap.

“Borrowing in such (for instance, S$) currencies also allows us to borrow much smaller amounts, which suit our requirements because if we borrow more than we have demand for, it will lead to a negative carry (an asset’s ‘carry’ refers to the return obtained from holding it)," said an official from IDBI Bank on condition of anonymity as he is not authorized to interact with the media.

The latest borrowing in Singapore bonds saved us at least 15 basis points, he explained. The bonds were issued at a coupon of 3.65% for a tenor of three years. A basis point is one-hundredth of a percentage point.

S$-denominated bonds are issued under the RegS format, which means that they are sold to investors outside the US. RegS bonds can be issued in the US dollar as well and in the past several companies have tapped funds through this route.

However, Indian companies are now choosing to issue bonds in S$ as the differential between the final coupon is substantial.

“The coupon, on a swapped based, is almost 36 basis points tighter than the secondary trading levels of IOC’s US$ bond issue maturing in 2021," said Singh of Standard Chartered. Both S$ and US$ bond issues of IOC have a tenor of 10 years.

Among other Asian economies, bankers said the S$ bond market is likely to see sustainable growth as the investors are more open and do not “overemphasize" on the issuer’s rating. Indian companies have also been tapping the Chinese, or the CNH bond market, for funding.

Over the last one year, Indian companies have raised money in different regional currencies such as the Chinese renminbi and the Swiss franc. However, investment bankers explained that raising funds in the CNH market is reasonable if the issuer has to utilize the funds locally.

ICICI Bank Ltd and IL&FS Financial Services Ltd, besides IDBI Bank, raised money in the Chinese currency in March and April this year.

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