Foreign currency bond issuance from Indian companies and financial institutions are expected to reach a record high this year, said Moody’s, the global rating agency.
The reason is an improved economic outlook and reforms to ease the raising of funds aboard. More could be raised in 2015 if there's a fall in the cost of hedging the currency risks.
Cross-border bond issuance from Indian financial and non-financial institutions reached $15.9 billion for the first seven months of 2014, near the record high of $16.4 bn last year, according to data from Dealogic.
For non-financial companies, foreign currency bond issuance from January through July reached $11.2 bn, surpassing the total of $10.2 bn issued in 2013.
There could be an additional $2-3 bn of foreign currency issuance from non-financial companies in the rest of this year, bringing the corporate total to $13-14 bn for 2014, it said.
Three sectors — oil and gas, metals and mining, and telecommunications — issued 67 per cent and 76 per cent of the foreign currency bonds from Indian non-financial companies in 2013 and 2014, respectively.
The first two categories will continue to drive the increase. They have a natural hedge against exchange rate risk and do not need to swap their foreign currency borrowings into local currency. These companies generate revenues in the same currency as their debt, both typically in dollars. This currency matching limits the risk of their profitability declining or debt levels and borrowing costs rising if the rupee weakens against the foreign currency, said Moody’s.
There would be also an increase in issuance from pharmaceutical, information technology and business process outsourcing companies. They derive a large part of their revenue from exports, typically denominated in dollars.
The dollar revenues give them a natural hedge against currency fluctuations for their dollar-denominated debt. Issuance from infrastructure companies will also increase, given their large funding needs.