Mumbai: The Tata Group is leading Indian companies filling the vacuum in bond issuance in Singapore as cash from global stimulus measures floods into the city.

Units of India’s largest business group have raised S$1.1 billion ($870 million) of almost S$1.33 billion in debt sold in the city by companies from Asia’s third-biggest economy in 2013, data compiled by Bloomberg show.

A unit of Tata Motors Ltd. paid 4.25% on S$350 million of five-year bonds this month. Yields on comparable rupee debt average 8.16%. Total issuance of Singapore dollar-denominated debt fell 32% to S$9.32 billion this year through 27 May.

Government incentives and proximity to India and China have helped the AAA-rated Southeast Asian nation become a regional wealth-management hub, prompting Morgan Stanley to call it the ‘Switzerland of the East.’ Investors bid for five times the amount sought by Tata Motors’s TML Holdings Pte amid a significant rise in demand from private banks, according to Australia and New Zealand Banking Group Ltd.

Robust liquidity combined with significant drop in Singapore dollar bond issuance volumes is driving investors to support foreign issuers to access this market, Jimmy Choi, Hong Kong-based head of Asia debt capital markets at ANZ, one of the managers of the sale, said in a 23 May e-mail interview. We definitely expect more such issuance by Indian issuers if markets continue to remain favorable.

‘Good liquidity’

The average yield on Singapore dollar corporate notes fell to a nine-month low of 2.47% in April, HSBC Holdings Plc indexes show, as demand outstripped supply.

Tata Motors chose to borrow in Singapore dollars mainly because a local unit needed funds to redeem preference shares that had been issued to partly finance the acquisition of Jaguar Land Rover, Sarika Kapoor Chokshi, a Mumbai-based spokeswoman for the Tata Group holding company, said by e-mail on Monday. Singapore’s financial market offers good liquidity and a balanced mix of investors, she wrote.

Earlier this year, international telephone service provider Tata Communications Ltd. sold S$400 million of bonds maturing in 2016 at 4.25%, data compiled by Bloomberg show. Investors bid for 14 times the amount offered, according to chief financial officer Sanjay Baweja.

‘Cost efficient’

The Singapore market has the liquidity and appetite for three-year transactions and is a cost-efficient market within which to raise money, Baweja said in an e-mailed statement on Tuesday. It is a market that is receptive to corporates with a good reputation.

ICICI Bank Ltd., India’s second-largest lender by assets, is the only Indian company outside of the Tata Group to have sold debt in the Southeast Asian currency, data compiled by Bloomberg show. The Mumbai-based bank raised S$225 million selling seven-year securities on 9 January at 3.65%.

The 32 listed Tata firms have about $35 billion in combined debt denominated in currencies including those of the US, UK and India, according to data compiled by Bloomberg.

In the Singapore dollar market, which is much smaller than the one for US dollar debt, investors would prefer the better Indian names, Hemant Dharnidharka, the head of credit research at SJS Markets Ltd. in Bangalore, said in a 27 May telephone interview. For the Tata Group, which already has debt denominated in US dollars and pounds, this allows them an opportunity to diversify.

Diversification tool

The issuers typically hedge their borrowings for currency risk, and Singapore’s method of managing its dollar within an undisclosed band against a basket of its peers makes it enough of a diversification tool, according to Dharnidharka. The basket comprises the US dollar, yen, euro and currencies of other trading partners, according to Credit Agricole CIB.

The Singapore dollar has weakened 3.4% this year to S$1.2640 against the greenback, data compiled by Bloomberg show. The rupee fell 0.3% to 55.7650 per dollar on Tuesday and has dropped 1.4% in 2013.

Singapore has emerged as a key Asian center of wealth management and a foreign-exchange trading hub.

The city had $512 billion of private-banking assets in 2010, the largest such pool of money in the region, according to figures from the Boston Consulting Group. It was the fourth- largest currency trading center in the world in April 2010 and Asia’s biggest after Tokyo, according to a triennial survey of 53 central banks by the Bank for International Settlements.

Private banking

Singapore-based issuers accounted for S$3.85 billion of the at least S$6.6 billion of local-currency corporate bonds sold this year, according to data compiled by Bloomberg. The future of foreign debt in the Singapore dollar market will depend on the quality and size of issuances, according to Barclays Plc.

The long-term trend is that the debt capital market will expand as more corporates and institutions tap the market, Bryan Henning, Singapore-based head of global research and investment for Asia, Middle East and Africa at Barclays’s wealth management, said in a 27 May elephone interview. We haven’t seen a lot of those issues yet. But if the quality is good and pricing is right, there’s nothing to suggest there wouldn’t be good demand for these bonds.

Small-sized issuances are difficult to trade in the secondary market, Henning said. The Barclays unit managed 200 billion pounds of assets as of 31 March.

Indian companies have raised a record $11 billion overseas this year amid all-time low dollar borrowing costs as central banks from the US to Europe and Japan print money to boost global growth. The Federal Reserve is buying $85 billion of bonds each month in a policy known as quantitative easing.

Attractive yields

The relatively high yields offered by Indian issuers makes their debt attractive, according to Barclays and the Export- Import Bank of India. The 4.25% coupon on bonds sold by Tata Motors’ unit this month compares with 2.45% paid by City Developments Ltd., Singapore’s second-largest developer, on S$100 million of similar-maturity notes issued in March.

India’s 10-year, rupee denominated sovereign bonds offer a premium of 507 basis points over similar-maturity US treasuries. The yield on the 8.15% note due June 2022 was little changed at 7.34% on Tuesday.

Bond risk for Indian companies slid this year. The average cost of five-year credit-default swaps insuring against non- payment by seven local issuers declined 42 basis points to 228, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in privately negotiated markets.

There is a flood of money because of quantitative easing, David Rasquinha, Mumbai-based executive director at Export-Import Bank said in a 23 May interview. Emerging markets like India and China will see a hunger for bond issuance as investors will get the yield they seek along with safety. BLOOMBERG

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