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Don’t ignore the GIFT that keeps on giving

By Shruti Chaturvedi
30 Jan 2018

A recent syndication for Omani borrower Bank Sohar made market observers take notice, thanks to the presence of Axis Bank at the top group, reflecting Indian banks’ rising eagerness to provide liquidity for foreign currency deals. Yet the country rarely features in the roadshow schedule for fundraisings — an oversight that banks should rapidly correct.

Axis turned heads in the loan market this month, when it clinched the mandate for a $300m global syndication for Bank Sohar. Its lead role in a deal for a Gulf borrower, alongside Bank ABC and Commerzbank, was seen as another sign of the growth of Indian banks on the international stage, which has accelerated with the establishment of the country’s first international financial services centre (IFSC) — GIFT-Tec City.

More than a year after local banks started lending from the IFSC, they have quickly learnt the ropes in the international syndicated loan market. This is shown by the ascent of the likes of privately-owned Kotak Mahindra Bank and Yes Bank into the top group for sizeable deals such as an up to $2.16bn borrowing for Tata Steel.

Even as participants, Indian banks that do not have an overseas branch network have been snapping up dollar loans through their GIFT City branches as they aggressively scale up their freshly created foreign currency balance sheets. Examples include a $394m deal for first time borrower Mu Sigma and a $651m loan for Cairn India Holdings, both of which wound up late last year.

Their growing presence marks a dramatic shift from the past, when firms like State Bank of India, which has an extensive international branch network, dominated the offshore loan landscape.

The only way is up

This growth has been nothing short of impressive. Firms in GIFT City clocked transaction volumes of $8bn in the last 10-12 months, according to a senior official at the IFSC, a big chunk of which was as loans.

But that is only the tip of the iceberg.

Indian institutions with widespread international operations, including Axis Bank and Bank of Baroda, are planning to concentrate their activities in GIFT City. That would give a massive boost to volumes, which are expected to jump to $30bn-$40bn by the end of the next financial year in March 2019, the official reckons.

It appears that the only way is up for Indian banks lending from the financial hub. But what is also a boon is that their scope from GIFT City is not confined to just funding Indian borrowers’ overseas units. They can also provide loans to any foreign entity, as long as the currency is not rupees.

No such deals have hit the market yet — but bankers reckon that is more because of international loan arrangers’ failure to present borrowers with the option, rather than Indian banks’ unwillingness to lend to companies beyond their home turf.

A change in approach could be the trigger.

An outreach by large arranging banks targeting their Indian counterparts in GIFT City would be a good start. A couple of years ago, international banks regularly started holding roadshows in Tokyo to harness liquidity of smaller Japanese banks, especially for investment grade deals.

Mumbai on the map

Indian banks’ credit appetite is decidedly different, considering their cost of funds in dollars is higher. But even if they are not aggressive with their approach, it would be well worth the effort to loop them in for syndications by borrowers slightly lower down the credit curve.

For example, mid-sized companies sitting on the borderline of investment and speculative grade, which may not find ready takers in traditional markets for roadshows such as Singapore and Japan, could benefit greatly from untapped liquidity of Indian lenders in GIFT City.

However, for that to happen, foreign banks need to devote resources towards investor education in the region.

While GIFT City is often the booking location of deals, the top brass of Indian banks still make decisions from Mumbai, the country’s traditional business centre. Foreign banks looking to expand their relationships with Indian lenders should add the coastal Indian city to their roadshow schedules — just the way they did with Tokyo a few years ago.

A handful of early adopters have already begun holding meetings in both GIFT City and Mumbai. But this is not nearly enough. The small investment of a few extra hours on a flight pales when compared to the millions of dollars of untapped liquidity the centre offers.

Arrangers neglecting the promise India holds would be the ultimate losers. But more glaringly, they would be robbing their clients of a new and abundant source of funds.

By Shruti Chaturvedi
30 Jan 2018