BackOffshore bond issuances by Indian companies to increase, says Fitch
Fitch estimates foreign bond issuances by non-financial Indian firms to have crossed $13 billion so far in 2014
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Mumbai: Indian companies will increasingly access the offshore debt market in a bid to save costs, as firms refinance debt and need funds for capital expenditure once the investment cycle restarts, according to Fitch Ratings Inc.
The rating company estimates foreign bond issuances by non-financial Indian companies to have crossed $13 billion ( ₹ 80,500 crore) so far in 2014, compared with $9 billion in 2013, the agency said in a note on Wednesday.
Fitch said that the number of issuers tapping the markets should grow, even though the Reserve Bank of India (RBI) limited offshore debt issues by Indian companies, either directly or indirectly, above the interest cap set out in the Foreign Exchange Management Act. The RBI circular also imposed restrictions on Indian entities providing guarantees to their overseas subsidiaries or holding companies for raising offshore debt, noted Fitch.
Meanwhile, offshore bond issuances by non-investment grade firms have increased to over $5 billion in 2014 from $3 billion in 2013, Fitch said. Non-investment grade companies are those with a credit rating lower than ‘BBB-’.
“The offshore capital markets are increasingly attractive to Indian companies partly because of better pricing for their bonds," the report said.
Offshore markets offer a more cost-effective funding source compared with domestic markets for companies with significant foreign inflows. The pricing of such foreign bonds has also been helped by a reduction of withholding tax on interest payments of offshore bonds to 5% from July 2014 compared with 20% previously.
Mint reported on 21 November that firms including Bharti Airtel Ltd, Oil India Ltd (OIL), ONGC Videsh Ltd (OVL), Tata Steel Ltd, Reliance Industries Ltd, and Sesa Sterlite Ltd have all refinanced overseas loans this year at cost savings that range from 10-80 basis points. One basis point is one-hundredth of a percentage point.
According to Fitch, investor demand for Indian bonds has also been strong due to the expected improvement in economic growth in India, improved political stability and strong liquidity in global capital markets,
The agency believes that with growing appetite for Indian bonds, sectors that traditionally have not accessed these markets may start to do so in 2015. For instance, companies in the Indian real estate sector issued bonds for the first time in 2014, Fitch said.
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