Ticket size of India Inc's foreign bond issues dips

Uncertain environment and shrinking investor appetite lead to decline in size

Once again, India Inc is scouting for funds abroad. However, this time, it is willing to mop whatever little investors are ready to offer.

Merchant bankers say the average ticket size of foreign bond issuances is shrinking, as Indian issuers are raising funds in tranches. This, they add, is because of the shrinking appetite of investors. “Investors are cautious due to the uncertainty in the environment. Hence, Indian issuers have been raising funds in small quantities and visiting the markets from time to time. Though there have been a couple of large deals, so far, most transactions have been below $500 million,” said a senior banker with a foreign bank in India.

In May, a large Indian bank raised only $16 million by selling bonds in the renminbi bond market abroad. So far this year, Indian companies and financial services firms have raised about $6.62 billion from 18 issuances. Of these, only seven issuances have been worth $500 million or more. Also, there have been instances of issuers revisiting the market more than once. IDBI Bank has raised $346 million through three separate issuances — through bonds issued in dollars ($36 million), Swiss francs ($110 million) and Singapore dollars ($200 million). With a renminbi-dominated bond issue in November 2011, the bank tapped investors from four different currency markets in less than a year. “We kept a close eye for the right window of swap rates and investor appetite across currencies to raise funds,” said IDBI Bank Executive Director Melwyn Rego.

So far this year, Reliance Industries, State Bank of India, ICICI Bank and Export-Import Bank of India have raised funds through foreign currency bonds more than once.

“I see a clear trend of Indian issuers exploring niche markets. As long as the final cost in dollars is within their expectations, we have witnessed issuers tapping new markets. As a result, ticket sizes for many of the transactions this year have not been large,” said Sunil Agarwal, head of institutional client group at Deutsche Bank in India.

While the dollar has been the currency of choice for Indian issuers, they have also explored markets like China and Singapore to raise funds. This year, seven of the 18 foreign bond deals were in currencies other than the dollar.

Market participants said some issuers were active last year and, therefore, their requirement was less this time. “Banks borrow according to their requirements. If some bank borrowed heavily last year and is deploying the funds for shorter tenures, it may not feel the need to come back this year,” said an executive director of a public sector bank.

Merchant bankers said in 2011, Indian companies raised $9.1 billion though foreign bond issuances.