India Inc told to advance foreign bond issuances

Issue arrangers say coupon rates for foreign bonds may harden next year due to a pull-back of the US Fed's third round of quantitative easing

Issue arrangers are advising Indian borrowers to advance borrowings by way of foreign bonds, amid expectations coupon rates for these bonds would harden next year due to a pull-back of the US Federal Reserve's bond-buying programme, or the third round of quantitative easing (QE3).

According to estimates, so far this year, Indian companies have raised about $9.7 billion, S$1.3 billion and A$200 million in these respective currencies, owing to softening borrowing costs.

According to issue arrangers, last year, volumes of international bond issuances out of India stood at $8.6 billion, S$900 million and about $1.2 billion equivalent in currencies such as Chinese yuan, Japanese yen, Swiss franc, etc.

"US interest rates are broadly expected to start increasing towards the end of 2013, owing to improving economic fundamentals and reduction in quantitative easing," said Jimmy Choi, head of Asia debt capital markets at ANZ.

In the last 12 months, overall funding costs for Indian issuers had significantly improved by 50-150 basis points, Choi said, adding, "We are witnessing robust liquidity with Asian investors."

Last month, US Federal Reserve Chairman Ben Bernanke had said the US economy still needed aid and premature scaling down of the bond-buying programme could lead to substantial risks of slowing or ending the economic recovery.

He had, however, added the Federal Reserve was ready to taper its bond-buying programme in the coming months, provided the housing sector and the labour market continued to show strong signs of growth.

"While there are diverging views on how long these low rates would last, they are bound to start rising sometime in the future. Over the last few trading sessions, market volatility (both in the US treasury markets, as well international debt and equity capital markets), triggered by the changing perception of the withdrawal of the Fed stimulus, highlights the pace in which US treasury yields could rise, once the market starts anticipating a change in Fed's stance," said Jujhar Singh, managing director and head of debt capital market (South Asia), Standard Chartered Bank.

However, the rise in coupon rates in the international market is seen as a boon for domestic fund-raising. "Companies will start accessing the domestic market to raise funds. We will see more bond issuances domestically," said Ramesh Kumar, senior vice-president (debt), Asit C Mehta Investment Interrmediates.

BOND BASICS

• Overall funding costs for Indian issuers has improved in last 12 months and funding costs have come in by 50-150 bps
• Indian companies have raised about $9.7 billion, Singapore Dollar 1.3 billion and Australian dollar 200 million so far in 2013
• US interest rates are broadly expected to start increasing towards the end of this year
• We may see more domestic bond issuances in 2014