Overseas fund raising via bonds

India Inc advised to rush as rates set to harden

Issue arrangers are advising Indian borrowers to prepone the borrowings by way of international bonds amid expectations that coupon rates for international bonds are expected to harden in 2014 due to pull back of US Fed's bond buying programme or Quantitative Easing 3 (QE3).

As per the estimates, in 2013 so far Indian companies have raised about $ 9.7 billion, Singapore Dollar 1.3 billion and Australian dollar 200 million. This is due to softening of the cost of borrowings. The estimates also point out that comparatively in 2012 out of India, the total volume of international bond issuances was $ 8.6 billion, Singapore Dollar 900 million and about $ 1.2 billion equivalent in other currencies like Chinese Renminbi, Japanese Yen, Swiss Franc etc.

“US interest rates are broadly expected to start increasing towards the end of 2013 on the back of improving economic fundamentals and reduction in quantitative easing,” said Jimmy Choi, head of Asia debt capital markets at ANZ. According to Choi overall funding costs for Indian issuers has significantly improved in last 12 months and funding costs have come in by 50-150 basis points. “We are witnessing robust liquidity with Asian investors,” he added.

Last month US Federal Reserve (Fed), chairman, Ben Bernanke gave a hint to unwind QE3. According to Bernanke the US economy still needs aid and premature scaling down of the bond buying program could lead to substantial risk of slowing or ending the economic recovery. However, he also added that Fed is ready to taper its bond buying program in the coming months if the housing sector and labour market continue to show strong signs of growth.

“While there are diverging views on how long this low-rates will last, they are bound to start rising sometime in the future. Market volatility (both in the US treasury markets as well international debt and equity capital markets) over the last few trading sessions triggered by the changing perception of the withdrawal of Fed stimulus, highlights the pace it which the 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.