Wednesday, 22 November 2017

boosts already growing confidence in Indian debt

Driven by more attractive rates and relatively strong economic
fundamentals among emerging markets, offshore dollar borrowing
by Indian companies has already risen 32 percent from the start of
2017 to $8.81 billion, according to Reuters data.
The rating agency’s decision on Friday to raise India’s credit
assessment for the first time in nearly 14 years to a notch higher
than its rivals was perfect timing for billionaire Mukesh Ambani’s
Reliance Industries, which announced plans to raise $800 million
offshore just days before.
The upgrade to Baa2 from Baa3 lifted Indian stocks, bonds and currency and helped Reliance price its notes at 130 basis points (bps) over U.S. Treasuries on Tuesday, the tightest ever spread for
an Indian issue.
Other companies are assessing if the narrowing in Indian bonds
yields over U.S. Treasuries will last with a view to raising fresh
funds, say bankers and corporate finance heads.
Markets have received the upgrade well, said Jujhar Singh,
managing director and head of capital markets, South Asia at
Standard Chartered Bank.
“This should give further confidence to Indian corporates to raise
dollar funds through the international bond markets at the tightest
ever spread in the last 10 years,” he said.
Foreign investment in India’s domestic corporate debt has reached
its ceiling under central bank-mandated limits, forcing those
investors who want exposure to India to buy offshore. This had
helped tighten spreads even before the upgrade.
State Bank of India 2024 bonds have come in to 120 bps over U.S.
Treasuries from 126 bps over just before the Moody’s upgrade and
147 bps over in early 2017.
Seshagiri Rao, joint managing director of India’s JSW Group, a
steel-to- energy company, said the ratings upgrade could help JSW
potentially save over $1 million annually on its borrowings.
Mahindra Group, which operates multiple businesses from autos to
information technology, might tap offshore markets too, said
finance head V.S. Parthasarathy, adding “a small one step upgrade
by Moody’s is a big step up for India’s confidence.”
Companies, including quasi-sovereign issuers that had already
begun work on raising funds offshore, such as Indian Railways
Finance Corp and Power Finance Corp, are now speeding up the
process, bankers said.
State-controlled Hindustan Petroleum, might explore raising funds
offshore next year, Chairman M.K. Surana said.
“Some institutional investors who are required to invest in
investment-grade bonds might not have been willing to buy India
dollar bonds in the past as the Baa3 credit rating did not give them
psychological comfort margin in case of a downgrade,” said Ken
Hu, a senior investment officer at Invesco.
The prior Baa3 rating was the lowest investment-grade level.
Lower-rated issuers could also benefit with some bankers
estimating their borrowing costs could fall as much as 15 basis
points in offshore dollar markets.
Still, Moody’s upgrade may not be enough to please all debt
“India’s a good credit to have on the books for foreign investors,”
said a senior investment banker, who declined to be named as he is
not authorised to speak to media. “However, much bigger traction
among investors will happen only if at least one more rating agency
upgrades India.”
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