By Shashank Nayar
Indian companies have tapped the offshore markets more often this year. So far in 2019, 24 companies have mopped up close to $11.2 billion in dollar-denominated bonds, against just $5.3 billion in 2018, with the cost of funds having becoming cheaper. The offshore issuances so far is the highest in the past two years.
For instance, NTPC raised $450 million in March at a coupon rate of 3.75%; last year it paid a coupon rate of 4.5%. The spreads fell for the state-owned power producer against the US treasury yield by 22 basis points (bps) to 143 bps.
International bond arrangers believe conditions in 2018 were not conducive for offshore issuances as demand was low. Global investors, they said, feared that the US Federal Reserve would continue to raise rates further, leading Indian issuers to stay away from offshore markets.
In comparison, this year the Fed has turned somewhat dovish. The US 10-year-bond yield fell to 2.22% in May against a high of 3.23 in November 2018.
Global and domestic scenarios this year are better and with the Fed turning dovish, the fear of a rate hike is negligible leading to higher issuances, said Chetan Joshi, MD & head, debt capital markets, HSBC. HSBC is the lead arranger in 2019 so far for dollar-denominated bond issuances, based on data by Bloomberg.
The increase in issuances can also be attributed to recent regulatory changes which allow corporates to issue dollar bonds for the three-year tenor. Companies and especially NBFCs would like to tap the three-year tenor bucket and raise money overseas, Joshi added. Shriram Transport raised $500 million on April 24 at a rate of 5.95% for the three-year tenor.
Housing finance companies, too, are tapping the offshore route for raising funds. Indiabulls housing finance (IBHF) raised $350 million at 6.37% in May while PNB Housing Finance through a stock exchange notification said it will raise $1 billion through bonds and is yet to be priced.
Apart from state-owned housing finance company Hudco, no other HFC has raised funds through dollar bonds so far. We can expect even more offshore bond issuances as liquidity is still tight in domestic markets and as more companies look to diversify their fund raising portfolio, said Malay Shah, head, fixed income, Indiabulls Asset Management.
Interest rates in the domestic markets have been higher in 2019 with the average bank lending rates for fresh loans seeing an increase of nearly 50 bps to 9.81% in February 2019 over the previous year, according to data by Care Ratings.
Non-bank financial companies, which dominate the bond issuances in the domestic markets, have also witnessed an uptick in their cost of funds, as liquidity constraints and lower funding by commercial banks and mutual funds affected costs.