How strong macro economic fundamentals and stable rupee is helping Indian firms and banks

Source: Financial Express, Aug 07, 2017

Indian companies and banks are able to mop up money from overseas markets at lower interest rates these days, thanks to the country’s strong macro-economic fundamentals and a stable currency. The total amount raised by companies and bonds in dollar markets so far in 2017 has hit $11 billion, which is way above the $8.3 billion picked up in 2016. In the last seven days alone, close to $2 billion has been picked up by banks and firms. Arun Saigal, MD (global finance), Barclays India, said there is strong appetite among global investors for Indian paper, a reflection of the strong macro-economic environment. “We could see spreads on Indian paper decline as a result,” Saigal said. Last week, Vedanta Resources priced its $1 billion dollar bond issue, with a tenure of seven years at a coupon rate of 6.125%. This is far finer than the 6.375% that it paid for money that it raised in January, for a shorter tenure of five and a half years, Bloomberg data shows. Moody’s had given Vedanta’s issuance a B3 rating.

In June, Adani Ports and Special Economic Zone priced its 10-year dollar bonds at just 195 basis points over the benchmark treasury yield with a coupon rate of 4%. That was better than the rate of 215 basis points over the 5-year treasury which the company paid to raise five-year money or a coupon rate of 3.95%. APSEZ to be sure, commands a good rating; it was rated Baa3 by Moody’s. Ananth Narayan,Head(financial markets), Standard Chartered Bank, points out the India story is a strong one with respectable growth, low inflation and a strong rupee. “Given the political stability and progress on reforms such as GST, bankruptcy code, the outlook is also perceived to be bright,” Narayan says.

The scarcity value attached to Indian paper is high. Although $11 billion may seem a big amount from an Indian perspective, it is small compared with issuances from other countries, especially China. Last week, private sector lender Axis Bank priced its five-year dollar bonds at 130 basis points over the 5-year US Treasury yield. This is 30 basis points lower than the spread —over the US treasury — of 160 basis points that it forked out for a 5-year dollar bond in June 2016.

Canara Bank recently picked up $ 400 million of 5-year money at a coupon rate of 3.25% ; in 2013, the state-owned bank paid as much as 5.25% for bonds of a similar tenure. Both lenders were rated Baa3 by Moody’s. Foreign portfolio investors (FPIs) have so far bought close to $17.7 billion of rupee debt in the local market. The investment limits in corporate bonds have already been fully utilised. The currency has also been on a surge this year with the rupee strengthening close to 6.65% against the dollar in 2017.

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