Buses turn at a crossing as pedestrians exit the Chennai Central railway station in Chennai, Tamil Nadu, India. (Photographer: Sanjit Das/Bloomberg)

Gung-Ho Overseas Bond Market Makes Indian Companies Happy

(Bloomberg) -- Indian companies, facing a backlog of issuance plans after domestic funding effectively shut down last year, are finding renewed hope with overseas bond sales that are set to scale new heights this year.

Some 17 issuers from the South Asian nation have raised a record $10 billion from global bonds year-to-date, compared with sales from just eight borrowers last year, according to data compiled by Bloomberg. Issuance will reach a new annual peak as more borrowers tap the dollar market to benefit from benign rates and easy liquidity, said HSBC Holdings Plc, which became the No. 1 arranger for India overseas issuance in the quarter ended March 31.

It couldn’t have come at a better time. Investors in the domestic credit market are still roiling from the shock of defaults by shadow financier Infrastructure Leasing & Financial Services Ltd. Rising wariness among mutual funds and institutional investors has led to tighter market liquidity and has weighed on company ratings, which have deteriorated at the fastest pace in six years.

Gung-Ho Overseas Bond Market Makes Indian Companies Happy

“Domestic market conditions remain subdued, and local credit investors are seeing a fair amount of upheaval in their portfolios,” said Chetan Joshi, head of debt capital markets for India at HSBC. “In these circumstances and going by the run rate, overseas issuance by Indian companies will hit a new peak in 2019.”

Gung-Ho Overseas Bond Market Makes Indian Companies Happy

The surge in overall issuance was paced by a rush to the dollar market by high-yield issuers, which sold a record $3.34 billion of foreign-currency bonds so far this year. Sales got a boost from the Federal Reserve pausing in tightening policy, which compressed spreads on Indian dollar bonds to the lowest in about 11 months, ICE BofAML index data show.

About $15 billion of offshore bonds and loans are due to mature by the end of this year, and more than $27 billion in 2020, according to Bloomberg-compiled data.

Even a fractured verdict in the ongoing federal elections wouldn’t upset the momentum for issuance, according to HSBC’s Joshi. Prime Minister Narendra Modi is seeking a re-election in the ongoing polls, the outcome of which will be announced May 23.

Gung-Ho Overseas Bond Market Makes Indian Companies Happy

“The results might just end up changing their plans a little bit -- either accelerating or pushing out borrowing calendars,” Joshi said.

Here are some more of his comments, which have been been edited and condensed for clarity:

How do you expect credit spreads to move?

It is unrealistic to expect spreads on overseas issuance to continue to compress further as they are already quite tight. At some point now, investors are going to say that this is the minimum level where I want to buy a bond. The question is not whether things will get much tighter but whether there are events in the horizon which can drive credit spreads wider.

What pushed HSBC to the top of the league tables?

There is more business this year in the segments we are active in. We like to be more active in the more complex transactions, in high-yield credits, in first-time issuers. We are also exceptionally strong in the financial institutions space, and the gamut of issuers from that space also grew significantly during this period.

©2019 Bloomberg L.P.