Amid a turbulent market for global financing, as bankers showed confidence in the world’s fastest growing major economy, Indian companies have raised 7 percent more through international syndicated loans this year.
Data shows a four-fold increase in loan fundraising for State-run oil company ONGC Videsh Ltd. and Tata Steel Ltd. compared to the $2.4 billion in offshore bond offerings by tem to touch $11.5 billion. Lenders are charging them less than Chinese counterparts and are seeking the lowest premium over benchmark rates to lend to Indian borrowers since 2008.
“There is significant interest in India given the stability in the economy and a good supply of government-owned entities tapping the market. A heightened sense of caution regarding China has also driven lenders to consider alternate markets such as India,” said Yogesh Venkatachalam, a director for loan syndication at Australia & New Zealand Banking Group Ltd. in Hong Kong.
While in China the pace of expansion slowed for a third consecutive quarter to 6.7 percent, yBottom of Form
ear-on-year growth in Asia’s third-largest economy accelerated in the first three months of 2016 to 7.9 percent. although sentiment took a hit following this month’s announcement by central bank chief Raghuram Rajan that he won’t be sticking around beyond September, confidence in Indian Prime Minister Narendra Modi’s plans for deregulation and a new bankruptcy law are also driving interest from foreign bankers.
As much as $20 billion though overseas loan syndication this year could be raised by Indian business, estimates ANZ’s Venkatachalam. Companies that need to refinance maturing debt would largely drive the volumes, he said. $4.8 billion of loans in the remaining part of 2016, $14 billion in 2017 and $13.1 billion in 2018 have to be repaid by firms.
So far this year, 194 basis points has been the average margin paid over benchmark rates on non-rupee loans. That is lower compared with 252 basis points for non-yuan loans to Chinese borrowers and that’s the lowest for any January-June period since 2008.
According to ONGC Videsh, the largest Indian borrower in the foreign-currency loan market this year, a loan is cheaper also gives leeway to borrowers to pay back the debt earlier even though companies have to comply with a lot more covenants while taking a loan.
“It’s no surprise Indian companies are getting better rates. The entire world is looking at India in terms of growth and feels that India could take the place vacated by China,” said Satpal P. Garg, its New Delhi-based finance director.
After the central bank last year lowered the cap on what issuers can pay to raise money overseas, India’s overseas bond offerings have dropped 63 percent in 2016. With an all-in-cost of more than 300 basis points over the six-month London interbank offered rate, the new rules state that issuers can’t sell three-to-five-year debt abroad. The previous premium limit was 50 basis points higher.
According to an index of Indian issuers compiled by Bank of America Merrill Lynch, the average spread over sovereign yields on offshore Indian corporate bonds widened to 299 basis points as of June 23 from 261 basis points at the end of June 2015. From 275 basis points in the first half of 2015 there has been a drop in the average margins on non-rupee loans.
“Companies are choosing loans over bonds as they are cheaper. India’s investment-grade rating and overall improvements in macroeconomic fundamentals have also helped companies to lower borrowing costs,” said Raymond Chia, head of credit research for Asia excluding Japan at Schroder Investment Management Ltd. in Singapore.
(Adapted from Bloomberg)
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