According to bankers, the US downgrade and the persisting euro zone debt crisis have raised doubts over global investors’ appetite to subscribe to foreign currency-denominated bonds issued by domestic companies.
As a result, many Indian companies and financial institutions have started reassessing their overseas fund-raising programmes, with a few deciding to postpone proposed debt issuances.
State-run lender IDBI Bank did a road show in May for its proposed $300-million Swiss franc bond sale. The bank is yet to launch the issue.
“We have not raised the money, considering the events in Europe. We are waiting for the markets to improve. We are in readiness and prepared to launch the issue as soon as we feel stability has returned and sentiments have improved,” a senior official in the international banking division of IDBI Bank told Business Standard.
Local rival Bank of India is also having second thoughts over its planned medium-term note programme.
“The size of the issue is likely to be at least $500 million. But, these are volatile times. Spreads are likely to harden. This is not the right time to visit the market,” a senior official of the bank said.
BOI would wait till mid-September to tap the overseas market with its proposed bond issue, he added.
Rural Electrification Corporation (REC) has already postponed its proposed sale of Swiss franc-denominated bonds from mid-August to the last week of the month. “Whether we go ahead and launch the issue on August 29 will depend on the market conditions. We are keeping a watch on the situation,” said chairman and managing director H D Khunteta.
The lower interest rate advantage of markets abroad saw offshore bond issuances from Indian companies touch a record $7.6 billion in the first six months of this calendar year. Funds raised through similar issuances in the corresponding period last year were estimated at $2.2 billion, according to data available with Dealogic.
Economists and financial market experts feel companies will prefer to wait for some time now before raising funds through foreign bond issuances.
“In an environment of generalised risk aversion, there will always be some doubts in investors’ minds on taking fresh positions in new debt issuances. As a result, issuers may wait on the sidelines and evaluate the situation,” said Samiran Chakraborty, regional head of research, Standard Chartered Bank.
According to Sajjid Chinoy, JP Morgan’s India economist, while external commercial borrowings are expected to rise because of the interest rate differential, Indian companies may have to pay a higher premium to raise funds through dollar-denominated bonds.
“Given the heightened risk aversion globally, credit spreads across most emerging market assets are expected to rise. As such, the credit premium over Libor that Indian companies typically face when issuing dollar-denominated debt will rise if the global uncertainty persists and the flight to safe havens continues,” Chinoy said.
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