05/02/21

INDIA: Companies go on an offshore bond binge.

As published on livemint.com, Thursday 4 February, 2021.

Indian corporates are rushing to tap the offshore bond market to raise debt with the market also opening up to high-yield or junk bond issuers.

In just over a month in 2021, Indian firms have raised $3.3 billion by issuing bonds to overseas investors, showed data from financial markets data provider Refinitiv.

Private firms such as Adani Ports and SEZ Ltd, Continuum Green Energy Ltd and state-run entities such as SBI, Export Import Bank of India and Power Finance Corp. have mobilized funds through the offshore debt capital market this year. Others such as UltraTech Cement Ltd, ReNew Power Pvt. Ltd and IRB Infrastructure Developers Ltd are also planning to use the route in the coming weeks.

“This year has opened on a positive note for the offshore bond market, with an oversubscribed bond issuance by Exim Bank followed by other private and public players," said Ravi Dubey, a partner at law firm IndusLaw.

“From an issuer perspective, there is a clear advantage of lower interest rates in the offshore bond market. Some of the issuers are tapping the offshore bond market to repay their higher-priced loans. For others, these bonds provide an additional avenue for debt financing, especially where domestic lenders have hit their group limits," he said.

India Inc. began 2020 with a flurry of offshore bond sales but this came to a halt due to covid which spooked the debt capital market, making it more expensive for firms to raise capital. Still, they managed to raise $13.9 billion in 2020, though the number was significantly lower than the $21.4 billion raised in 2019, data showed.

According to industry experts, while the pandemic had made it difficult for lower-rated firms or so-called high-yield issuers, the market has opened up for such issuers too in recent months.

“Fundamentally, what you have is a market which was until now not open for crossover or high-yield kind of issuers. The market has now opened for these issuers. Hence, people are now looking to take advantage of this opportunity," said Shantanu Sahai, managing director and head of debt at Nomura India.

“Right now, we are seeing a very distinct flavour in the set of companies that are tapping the market. There are a bunch of renewable or ESG-related companies that are going out and issuing bonds. The second category which is now becoming active is manufacturing sector companies," he said.

IndusLaw’s Dubey said leading players in the banking and finance sector will continue to tap the offshore bond markets, particularly in light of budget announcements.

To be sure, while borrowing costs are lower overseas, the differential may not be much once all costs of offshore borrowing are considered, especially for lower-rated companies.

“While borrowing costs are low overseas, for a lot of the issuers it is not necessarily cheaper compared to rates in India. On the margins, it is probably more expensive to issue offshore, because when you add the withholding tax, hedging costs, rating and listing costs, in aggregate, the cost comes out to be a little more expensive than in India," said Sahai. “But it is a good way for companies to diversify their sources of funds."

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