MUMBAI: Primary bond offerings from Indian issuers fell to a decadal low in 2018 with several Indian corporates shelving fundraising plans amid rising US interest rates and an uncertain investment environment at home. In an interview, Amrish Baliga, managing director and head of financing at Deutsche Bank India, lays down his expectations and the themes that will drive investment activity in 2019. Edited excerpts:
Last year was the worst period in a decade for overseas bond issuance by Indian companies. How do you see 2019?
We expect the market environment to improve this year with an expectation of large net inflows into emerging market funds which could present opportunistic access to Indian issuers. Investor appetite for quality Indian paper remains strong. However, the recent external commercial borrowings regulations from the Reserve Bank of India have put INR debt refinancing on the negative list which could restrict the universe of potential issuers.
Can a fractured mandate in general elections upset overseas investor interest in Indian paper?
While the likelihood of a fractured mandate leading to a macro-economic or policy slowdown could indeed be negative for investor sentiment, global investors continue to have faith in the India macro story as it plays out. Irrespective of short-term disruptions, if any, appetite will remain strong for quality issuances out of India.
We aren’t seeing a lot of high-yield bond issuance out of India. What are the concerns?
Indian regulations do not allow for refinancing of rupee debt from foreign currency borrowings. This limits the potential issuer base as international investors usually would not fund greenfield projects. From an investor perspective, demand for high-yield paper out of India was muted given the global credit scenario. However, with improving markets, demand should pick up and potential issuers will have access at the right price point.
What factors can potentially spoil the party for bond issuances this year?
Though Asian credit markets remain slightly elevated, they are beginning to come off and are showing signs of a recovery. Any adverse change in sentiment could significantly reduce market access or offer funds at levels not viable to Indian issuers on a hedged basis. Potential issuers will evaluate a mark-to-market on their domestic funding costs and then re-evaluate their alternatives.
Deutsche Bank has been fairly active in distressed asset financing.
A key ingredient for success in this business is picking the right business model which can sustain a reworked capital structure. At the moment, there are quality assets across sectors awaiting resolution.
During 2019, we expect that the new administration and the Reserve Bank of India will continue to support optimal capital structures for these quality assets.