No more missing in action, India bonds head for busy Q4
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No more missing in action, India bonds head for busy Q4


Indian issuers have been a rarity in the bond market this year, with 15 international deals reaching investors. But market participants are predicting a busy fourth quarter, thanks to growing needs for infrastructure funding and new changes to rules governing offshore fundraising. Narae Kim reports.

Indian primary issuance in the international bond market has been dismal this year. Borrowers have so far raised a total of $7.5bn from the 15 deals — less than the $11.6bn raised via 18 deals during the same period last year, according to Dealogic. By the end of 2014, they had served up 25 deals, bagging $14.7bn.

“India has been a massive disappointment this year,” said a Hong Kong based syndicate banker. “Markets this year have been down in general but Indian has been particularly slow largely due to cheaper onshore funding options.”

But there is comeback in sight, with Indian infrastructure names expected to hit the market in droves. This is largely thanks to a $90bn mega infrastructure project called the Delhi-Mumbai Industrial Corridor Project (DMIC), which covers a 1,483km area between the two cities.

With financial and technical aid from Japan, India plans to develop infrastructure facilities such as water supply, high capacity transportation and logistics, covering six states.

“I do think Q4 should be better,” said a Mumbai-based DCM banker. “The government is trying to boost offshore bonds in areas like railways, roads, ports, defence manufacturing and renewable energy,” he said. “The smart city concept is still on the drawing board and the DMIC is another project now ready to take off.”

ECB overhaul

This rosy outlook comes on the heels of changes to offshore fundraising rules proposed by the central bank — rules that make it easier for domestic borrowers to raise debt overseas.


Under the proposal, Indian companies will now be able to borrow up to $50m in external commercial borrowings (ECB) with up to three year maturities without seeking RBI approval, and more than $50m for five years. The previous limits under this route had been $20m.

But the changes are not all positive. DCM bankers and Indian issuers alike, are particularly concerned about restrictions to their costs of financing. The central bank is seeking to slash the maximum all-in pricing that borrowers can pay, a move that could discourage some issuers from going overseas. The maximum yields they can offer has been shrunk to 300bp and 450bp over six-month Libor for three year and five year debt, respectively – 50bp lower than before in each case. 

“[The ECB cap] has been the major stumbling block for Indian issuers and now they are going to tie their hands more, rather than liberalise,” said a treasurer at a state-owned company. “With that cap in place, I don’t see how India will be able to become a bigger player in the international bond market when only a handful of investment-grade banks or conglomerates can meet the cap.”

Offshore money

However, some have welcomed the more restrictive ECB ceiling.  

“This is a carrot and stick approach,” said the Hong Kong-based syndicate banker. “The RBI wants to make sure good high-quality names access the offshore bond market, while discouraging low-tiered, low rated credits from tapping the international markets in an irresponsible way. I think this, in terms of physical debt market growth and sentiment surrounding India – is the right way to go.”

The banker added that with the change, the central bank is trying to make a statement to high-quality investors that the country is determined to improve its financial markets with its “higher in quality, lower in quantity” policy.

A senior treasury official at an Indian bank agreed, saying the impact of the restriction would be more on debt issued by Indian units directly — something not often done — rather than on notes sold by foreign subsidiaries.

For him, what is more key is the broader picture.

“It’s a huge step forward in the country’s efforts to gradually liberalise the ECB and its offshore bond issuance while excellently managing [foreign exchange] risks,” the official said.

According to him, foreign institutional buyers have had too few opportunities to invest in India, which remains a very attractive investment alternative amid China’s currency devaluations and economic slowdown.

“I’m not sure when it will be in effect, and whether overseas investors will be interested and actually jump in, but overall, I think India is going in the right direction,” he added.