Foreign investors are lapping up “made in India” paper whether its rupee debt or a dollar bond; and they’re willing to settle for interest rates that aren’t as high as they were getting a year back. Testimony to this is ICICI Bank’s latest offshore issue that attracted as much as $2 billion — the bank retained $500 million — at a price that was the lowest in seven years. With this banks and companies have raised approximately $9 billion in overseas markets so far in 2014 and Hitendra Dave, head of global markets at HSBC Bank, believes another $5-6 billion could easily come their way before the year is over. Last year, companies mopped up $11.5 billion through dollar bonds with Bharti Airtel and HDFC Bank accessing the market for the first time. This was despite higher credit costs as spreads at that time were close to 250-300 basis points.
Already, foreign portfolio investors have bought a record $18.6 billion worth of paper in the onshore Indian rupee debt market. “What it tells us is that four months after the new government has been in power, financial markets are confident that the government will deliver on its promises. Foreign investors have confidence that the government will facilitate an economic recovery,” Dave told FE.
The price of purchasing protection from the credit risk of an Indian company has nearly halved since January with credit default swaps (CDS) falling as much as 150 basis points. ICICI Bank’s CDS spreads are at an over four-year low and those of other notable Indian issuers such as Exim Bank and State Bank of India are also at similar levels.
Ananth Narayan G, head of global markets at Standard Chartered Bank observed, “If you comapre Indian credit compared with that of other emerging market credit, India has certainly outperformed. The optimism after the elections has contributed to this.”
ICICI Bank priced its 5.5-year dollar bond at 180 basis points above the corresponding US treasury yield, 20 bps lower than the issue arrangers had anticipated. “This is the tightest spread in a long long time and below even pre-Lehman levels,” Dave pointed out. Bankers believe investor appetite should remain strong given the National Democratic Alliance (NDA)-led government is expected to speed up economic growth by expediting clearance of stuck projects and unclogging funding channels.
The positive message from the government has not only encouraged short-term investors but also long-term buyers such as insurance companies and sovereign wealth funds. Such investors bought 10% of the ICICI Bank’s offer. Funds and asset managers bought 66% of the issue while banks bought 21%.
As some analysts believe India’s sovereign rating may get a boost in the coming months, the interest in Indian debt is only going to increase.
Aparna Iyer | The Financial Express