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Indian loans: some good news after a bad year

By Pan Yue
06 Jan 2021

Asian loans bankers are expressing guarded optimism about their prospects this year. Most of their hopes are so far concentrated on India, where a mix of public and private sector deals — as well as the occasional sponsor financing — should bring some welcome supply.

The country already showed signs of revival in the fourth quarter of last year, from both sponsors and corporates. Reliance Industries raised two deals, both worth over $1bn, to refinance debt at an overseas subsidiary. Two private equity firms, KKR and Baring Private Equity Asia, also sealed financing to support their acquisitions.

Bankers are hoping that India will keep the momentum up in the coming months, especially in private equity. Bankers express particular excitement about the loan to back Blackstone’s Piramal Glass acquisition. GlobalCapital Asia understands the deal is still in its early stages and the launch date has still not been decided, but bankers are taking it as a sign that PE firms are likely to remain active in the country.

India’s financial institutions could also bring business this year. In 2020, the international loan market only saw three deals from Indian FIG borrowers, according to Dealogic data. That looks set to rise dramatically. A number of borrowers in the sector, including Axis Bank, State Bank of India and Yes Bank, have 17 deals worth $5bn maturing within the next two years.

It is not just a question of refinancing. Financial institutions are expected to tap the market for new money loans as well, perhaps unsurprising when you consider their need to support India’s recovery. The World Bank reckons India’s economy will grow by 5.4% this year, compared to a contraction of 9.6% in the fiscal year 2020-21. Banks will be expected to do their bit.

More borrowing opportunities should be expected from the country’s conglomerates too, which are likely to raise dollar loans this year. The two deals from Reliance at the end of last year, both tightly priced, have given corporates some confidence. Bankers expect other companies, including Tata Group, to follow Reliance to the market.

Among state-owned enterprises, ONGC Videsh will launch its $700m facility into syndication this month, after mandating a group of six banks last year. Bookrunners are in talks with a few lenders individually to bring them in at the senior level before syndication.

There are plenty of deals on the horizon, then. But there is always a catch.

Unlike previous years, when banks would have plenty of mandated deals lined up to come to the market in the first few weeks, this year will start with slow deal flow across Asia. Apart from only a few potential deals which will hit the market later this month, bankers are still building up their pipelines. They have high hopes but relatively few confirmed deals.

Another challenge for international banks is the strong competition from domestic lenders in India, given the cheap cost of funding in rupees. That is likely to encourage companies that do not have dollar revenues to stick to the domestic market, although bankers believe those with international business will still find dollar deals attractive.

The verdict for Indian loans this year seems to be: stronger, but not exactly strong. That may be enough for bankers desperate to win new deals, especially given the diversification benefits banks can get from participating in Indian financings.

The future may not exactly be bullish for Indian loans. But after the calamity of 2020, it could be a lot worse.

By Pan Yue
06 Jan 2021