Dollar Bonds From India Still Apple of the Eye for Global Funds

(Bloomberg) -- For all the weak spots in India’s economy, investor’s love for the nation’s offshore bonds endures.

Companies have sold $10.6 billion of dollar debt so far in 2017, the most in three years, as one of the highest returns in Asia and prospects of a sovereign-rating upgrade prompt buyers to ignore data showing gross domestic product in the June quarter expanded at the slowest pace since 2014.

“There’s not only large institutional demand but also high retail appetite,” A.S. Thiyaga Rajan, a senior managing director at Aquarius Investment Advisors in Singapore, said by phone. “Some top Indian names are coming up” with dollar debt offerings, he said.

The optimism around Prime Minister Narendra Modi’s economic policies and prospects of outsized profits are proving hard to resist for bond bulls. Dollar-denominated debt from India has returned 5.70 percent this year, compared with 4.94 percent in China and 2.97 percent in South Korea, according to JPMorgan Chase & Co. indexes.

There’s more juice left in the rally, according to Anthony Leung, a senior analyst at Wells Fargo & Co.

‘Good Value’

India’s investment-grade company bonds “remains a pocket of good value” across Asia and the steps taken by Modi’s government are “steering the economy in the right direction,” he wrote in a Sept. 7 note. While challenges remain in cleaning up bad loans at banks, the start of an unified sales tax, abolition of subsidies and low oil prices will help offset the problems, he said.

The policy measures are bearing fruit and will lead to the nation’s credit rating being raised by Moody’s Investors Service “within a year,” Leung said. A Moody’s spokesperson said the firm does not comment on third-party speculation on ratings.

Rating firms have India just above “junk” status and while Modi’s government has pushed for an upgrade in the past few years, Moody’s, Standard & Poor’s and Fitch Ratings have all pushed back, citing high debt levels.

Green Bonds

That said, the unexpected slowdown in growth hasn’t put investors off India’s corporate debt or slowed new issuance. Buyers have drawn confidence from the fact that the nation is still one of the fastest-growing major economies in the world and a strong political mandate gives Modi more policy flexibility to revive expansion.

Power Finance Corp., a state-run lender to utilities, has sought bids from credit rating firms for its $1 billion medium-term notes. State Bank of India plans to raise up to $3 billion in the country’s biggest overseas green-bond issue, the Economic Times reported last week, citing an unnamed executive close to the initiative.

“There’s more demand than supply for Indian bonds as investors bet on the outlook of the Modi-led economy,” said Bryan Wang, a fund manager at Fuh-Hwa Investment Trust Co. in Taipei.

To contact the reporters on this story: Anurag Joshi in Mumbai at ajoshi53@bloomberg.net, Lianting Tu in Hong Kong at ltu4@bloomberg.net.

To contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net, Ravil Shirodkar