Falling treasury yields in the international market and widening of the investor base have resulted in Indian companies mopping $4 billion (Rs 21,850 crore) by issuing bonds in the foreign market in 2013. Corporations such as Bharti Airtel, Tata Communications and Reliance Industries and lenders like ICICI Bank and HDFC Bank have raised funds from abroad so far this year.
The momentum is expected to continue, as market participants expect Indian companies to raise another $10 billion by the end of 2013. However, issue arrangers feel companies should rush their issuances, as they see US treasury yields rising over the next six months.
In 2012, Indian companies raised about $10 billion by way of international bonds, estimate issue arrangers. "In 2013, the issuances by Indian issuers could be 50 per cent higher than 2012," said Jujhar Singh, managing director and head of debt capital markets, South Asia, Standard Chartered Bank.
According to issue arrangers, the coupon rates for raising international bonds have dropped significantly due to a fall in international treasury yields. "Issuances have picked up because the market is becoming so much wider and deeper. It's a reflection of the deepening of the debt capital market globally. Also, the investor base has widened. Since interest rates by historical standards are extremely low abroad, everybody is looking to add assets that offer you some yield picks up," said Hitendra Dave, managing director, head of global markets, India, at Hongkong and Shanghai Banking Corp.
For example, the yield on the five-year US treasury yield was 1.01 per cent in April and currently is at 0.80 per cent. At the start of 2013, it was in fact lower, at 0.76 per cent.
According to issue arrangers, the yields on US treasuries could start rising soon. "The US is showing signs of growth. If the economy starts to power up at a faster pace, the US Federal Reserve will be forced to scale back some of its quantitative easing measures. Even if the Fed gives a signal that it is contemplating removal of excess liquidity, the treasury market will react sharply," said an issue arranger with a foreign bank. Not wanting to be named, he said he was expecting a rise of 50 per cent in international bond issuance from Indian companies in 2013 to be a conservative estimate. "It may be more."
In the near future, state-run companies such as Oil and Natural Gas Corp and Rural Electrification Corp may come up with dollar bond issues worth $500 million each.
According to StanChart's Singh, this is the best time for Indian companies to raise funds from abroad, due to global liquidity and increasing confidence in the Indian economy. "Investors are seeing a diverse range of issuances from Indian companies. Internationally, the concerns of investors about the downgrade of India's sovereign rating has reduced significantly due to the actions taken by the government in the past six-eight months."
But a few arrangers are also of the view that issuances from banks may not be much.
"Bank issuances may be subdued as banks require these funds when borrowers need funds for their capex (capital expenditure). So growth will come from the corporate side," said an arranger, who also preferred anonymity.