India Inc is slowly coming back on track on raising funds abroad, with a more than $2 billion mop-up expected in the next three months. Companies raised only $200 million in the second half of calendar year 2011 via offshore borrowing through bonds — an 80 per cent drop from the first half, according to Dealogic data.
Companies say they are reviving their fund-raising plans, as they feel risk appetite is getting better and valuations are expected to improve. “Investor appetite is improving. Some of the overseas companies that did roadshows got a very good response. Hence, we are also looking to tap the overseas market now,” says H D Khunteta, finance director, Rural Electrification Corporation (REC).
REC has revived its plan to raise $200 million through Swiss bonds, which it had been deferring since October last year, as the markets were volatile. The company is pegging the cost of raising offshore funds at three-five per cent. The power sector lender is also raising funds through the yen, an alternative source of funding, apart from the dollar. The interest rates were lower for Japanese loans as compared to dollar loans, Khunteta explained.
Another reason firms are gradually looking offshore again is because the Mumbai interbank forward offer rate (Mifor), an indicator of hedging costs, has fallen sharply in the past few weeks as the rupee has begun to stabilise and market sentiment is improving.
“The demand for hedging forex exposure may also have come down as the rupee is beginning to gain some stability against the dollar,” says Abhishek Goenka, chief executive officer, India Forex Advisors. The rupee has gone up by about 2.6 per cent from 53.3 to a dollar to 51.9 in about a week’s time since January 1. However, the Mifor may start rising again, as the demand for hedging by companies may go up as the rupee is bouncing back, says Goenka.
Power Finance Corporation (PFC), one of the largest fund-raisers in the country, has also revived its $1 billion medium-term note plan (MTN) and will start the road show some time next week, with hedging costs beginning to move downwards. “We have revived our overseas fund-raising plans as the merchant bankers advised us the global economic environment is showing some improvement.
The Mifor has come down sharply, an indicator the hedging costs are coming down,” says Satnam Singh, chairman and managing director, PFC. “Even if we decide not to hedge our exposure fully, we would want the overall costs of raising funds, including hedging costs, to be less than the domestic cost of funds,” he adds. The one-month Mifor has fallen from as high as 9.41 per cent to 7.93 per cent since the last week of December. Even, the one-year Mifor is hovering around 6.97 after going up to as much as 7.77 per cent in late December.
The Mifor is the sum of the London interbank offer rate (Libor) and forward premium or the price paid for hedging by buying dollars in the forward market. Reliance Industries may also be looking at a $1 billion borrowing through offshore bonds for refinancing its debts and for acquisition purposes, sources familiar with the developments say. The cost of funds is estimated around 2.5 per cent. Arrangers are of the view companies with a high capex and acquisition financing needs would tap funds in the last quarter of the financial year. Merchant bankers also say conditions are becoming conducive gradually for Indian firms to tap the overseas market for financing their business needs, though the spreads have not really tightened or come down.
"Although on the pricing front there is still not much tightening of secondaries, investors do have appetite for quality credit. We feel there is enough liquidity in the market and investor appetite is improving. Also, positive news on the US economy have provided windows to tap overseas funds," says Manmohan Singh, managing director and head of debt capital market, RBS, India. RBS is the top arranger for overseas debt issuances in India.
