 "Brexit wary investors turn focus on Indian debt")
Brexit may have roiled the global markets, but has brought a window of opportunity for Indian firms looking to raise money from the overseas market.
Yield-chasing investors in Europe, gloomy after the Brexit related uncertainties, could be just as well looking at India for high fixed rate returns as is evident from the Rs 3,000 crore rupee denominated bond offering by Housing Development Finance Corp (HDFC), announced on Monday.
In fact, sources said, even as HDFC was planning for a Masala bond issuance for sometime now, the management saw opportunity in the Brexit related gloom and proposed to explore the market through India's first Masala bond issuance. So far, only International Finance Corp has issued such rupee denominated bonds in the overseas market.
Initial response of the bond has been great, say investment bankers, and lot many Indian companies, particularly those in the public sector unit are preparing to explore the market as well.
According to sources, government owed NTPC Ltd, Rural Electrification Corp. Ltd. (REC) and Power Finance Corp (PFC) has also given the mandate to investment bankers to explore the European market. All these companies, along with HDFC are regular bond issuers in the domestic market.
According to Utpal Oza, managing director and head of Investment Banking, Nomura India, one of the lead arrangers and book runners for HDFC bond issuance, said his firm was in talks with many others for raising rupee denominated bonds from the overseas market.
"We think that this transaction will be closely followed by a number of top tier public and private corporates firming up plans to access this market. We are in advanced discussions with a number of potential candidates and expect a robust issuance calendar in the coming months," Oza said.
These bonds will be issued outside US and are unrated, but are issued by domestically AAA rated customers, even as the country rating is BBB-, which is just a notch above junk. This explains the unrated part of the issuances. Even as they are unrated, the high credit rating of the issuers in the domestic market is comfort enough for the investors, even as they take the risk of exchange rate fluctuation.
But for that, the issuer has to give a premium. According to sources, the asking rates for the HDFC bonds maturing in three years one month were at around 8.35-8.45 per cent. Had the mortgage financer raised the money in the domestic market, it could have done so at a rate of 7.92 per cent for a three year bond, as per Bloomberg. At the present rate, 10-year bond for AAA rated corporates could be raised at 8.11 per cent.
The benchmark 10-year government bond closed at 7.34 per cent on Tuesday.
Oza of Nomura, however, sees this as an effort to create a new source of funding, to create a marketplace and HDFC has been pioneer in the past on corporate bond market issuances.
However, other bond arrangers do not see the prospect of raising foreign money that much attractive as eventually, the issuers may end up paying higher coupon than what the local funding would entail.
"There is no dearth of demand for AAA rated papers in the domestic market and therefore it makes little sense to raise money at a premium from overseas market," said an investment banker who did not wish to be named.
According to the banker, government owned funds had tried it last year, but did not proceed due to higher cost. Besides, when a substantial portion of corporate debt limit still remain unused, a serious foreign investor would not need to invest in debt papers listed abroad, he said.
