Home / News / India /  International debt markets are opening for Indian project financing: Deutsche Bank

MUMBAI: Rahul Chawla, co-head, investment banking coverage at Deutsche Bank, in an interaction with Mint, spoke about the latest trends in the debt capital markets such as Indian companies accessing overseas debt capital markets for project financing, rising interest in convertible bond offerings, and the leveraged buyout market.

Edited excerpts:

Q: What is the driving factor behind the strong fundraising in overseas bond market by Indian issuers over the last couple of years?

Chawla: In the last couple of years, we have seen the DCM (debt capital market) business come to maturity from being treated as an opportunistic market wherein issuers accessed the market for pricing benefits to now wherein we see the issuers actively seeking out this market.

There is more acceptability of Indian issuers in the high yield market, both in terms of quality of paper and the diversity of industries that are issuing paper. And I base that on the fact that in 2021, we've taken six debut issuers to the market compared to just one in 2014. The market is accepting new issuers for the quality that it brings and the diversification that it gives the investor base.

Q: What are some of the emerging trends in this market that we have seen in 2021?

Chawla: This year, the big focus for us has been on project financing bonds. We've done a couple of them, where structurally we have now started getting Indian project financing, given the fact that outside of the public sector banks there aren’t specialized project financing institutions in the market. So we've taken them to the global investor base. We have structured deals wherein there is an amortization schedule which even in a stress scenario can be met protecting investors well, simultaneously also incentivizing the sponsors from being able to use performance indicators for themselves to be able to use excess cash as long as they're meeting the base case projections.

Given the size and given the scope that is available, it is yet nascent, but specially when you look at the green energy sector, now the market receptibility has been set. So, very early stage project companies may not be able to tap if they won't get the right rating, but when you get into the double B's you know the risk return trade off that both the investor and the issuers look for, starts becoming more balanced.

Currently, the activity is largely on the renewable side right now, but whether it is the road sector or certain other infra related assets, I think we are ready for the market to be receptive to that industry as well. On the tenor, for investment grade issuers, which are few and far between at the moment, it can set to 10 years as well, but I think seven years is now something which the market is not shy of accepting and delivering.

Q. We have seen a couple of convertible bond offerings this year. Are such instruments making a comeback?

Chawla: It's an interesting thing that we are starting to think about and we want to play, especially with the commodity players, to think about a convertible bond structure in this environment. If the straight bond DCM high yield business remains muted because of the taper and market uncertainty. So given that and the way the equity markets are playing out in India, we feel that it is right for some of the industries such as commodity or heavy industries to look at convertible structures.

Q. M&A and buyout activity has been strong this year. Is that creating big opportunities for leveraged financing for investment banks?

Chawla: Another area in the debt market that has seen strong activity is bridge to bond where we have put in a lot of focus from our side, not just with the financial sponsors but with Indian corporate sponsors as well. We've worked with some of the largest players to help them acquire companies. So we have helped these acquirers with a bridge loan and then they can access the market, either the capital market or the more permanent bank financing structure, once the asset has been acquired, accumulated and assimilated. We have been involved in multiple deals and continue to lead the space in this business too.


Swaraj Singh Dhanjal

" Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
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