Bids for Coal India Ltd.’s initial public offer suggest the government will surpass its record 400 billion rupee ($9 billion) target from asset sales this fiscal year, helping to trim the budget deficit to a three-year low.
Coal India completed the nation’s biggest-ever IPO on Oct. 21 after investors ordered 15 times the amount of shares on offer, according to data on the National Stock Exchange’s website. Policy makers will raise about 500 billion rupees in seven more sales by the end of March, according to SMC Global Securities Ltd., India’s fourth-biggest brokerage.
Prime Minister Manmohan Singh’s aim to cut the budget shortfall to 5.5 percent of gross domestic product from a 16-year high of 6.9 percent is helping lure an unprecedented 1.6 trillion rupees into the nation’s stocks and bonds this year. Yields on 10-year bonds may fall to 7.75 percent by the end of March from 8.13 percent, said Navneet Munot, who oversees $8.5 billion as chief investment officer at Mumbai-based SBI Funds Management Pvt., a unit of the nation’s biggest lender.
“The government can easily raise 25 percent more than planned,” Jagannadham Thunuguntla, New Delhi-based chief strategist at SMC Global, said in an interview on Oct. 20. “This will ensure overall confidence in the government’s finances. India can demonstrate it is growing and still keeping its means and resources under control.”
The nation’s local-currency debt returned 3.68 percent in 2010, according to indexes compiled by HSBC Holdings Plc, as the Reserve Bank of India raised borrowing costs five times to contain inflation. Investors in China earned 2.54 percent, the least in the region, the indexes show.
The yield on India’s 7.8 percent note due May 2020 climbed 16 basis points, or 0.16 percentage point, in the last two weeks as speculation investors withdrew cash to buy shares of Coal India reduced the cash available to purchase debt. The yield was little changed at 8.14 percent today.
“Yields are probably peaking out,” SBI Funds’ Munot said by phone on Oct. 22.
India’s benchmark 10-year bond yield compares with 3.46 percent in China and 12.44 percent in Brazil, according to data compiled by Bloomberg. Investors demand 565 basis points more yield to hold India’s debt due in a decade rather than similar-maturity U.S. Treasuries. The difference has averaged 317 in the past decade.
International investors pumped $9.7 billion into rupee bonds this year, more than their combined purchases in the previous eight years, according to data last week from the Securities & Exchange Board of India.
The inflows spurred gains in the rupee, which advanced 4.6 percent this year, according to data compiled by Bloomberg. The currency was at 44.3450 per dollar as of the 5 p.m. close local time.
“Supply concerns in bond markets have decreased,” Takahide Irimura, head of emerging-market research in Tokyo at Kokusai Asset Management Co. that manages about $60 billion in assets, said in an interview on Oct. 20. “The rupee will likely continue to appreciate toward the year-end, supported by strong capital inflows.”
Finance Minister Pranab Mukherjee’s efforts to cut the deficit prompted Moody’s Investors Service to raise the nation’s local-currency credit rating one level to Ba1, the highest non-investment category, in July. The cost of protecting the debt of state-run State Bank of India slid 78 basis points from a one-year high in May to 161 points, according to CMA.
The federal government plans to raise 1.63 trillion rupees by selling bonds in the six months ending March, 6 percent less than originally planned, Finance Secretary Ashok Chawla said Sept. 23. The South Asian nation may review its borrowing program by the end of December, a Finance Ministry official with direct knowledge of the matter said on Oct. 20.
The government raised 677.2 billion rupees by auctioning third-generation mobile-phone permits in May and another 385.4 billion rupees by selling wireless broadband Internet services a month later, improving prospects of reducing the deficit.
“The 3G and disinvestment money can help the government reduce its fiscal deficit to below the 5.5 percent target,” Jahangir Aziz, the Mumbai-based chief economist for India at JPMorgan Chase & Co., said in an interview on Oct. 21. “These are one-time sales and don’t keep happening every year. Asset sales aren’t a sustainable way to cut a fiscal deficit.”
Fitch Ratings said last week that quantitative easing in developed countries is a “key theme” for credit risk in emerging markets. India may be insulated because trade and investment flows are less important to the nation than to many of its peers, Andrew Colquhoun, the head of Asia-Pacific sovereign debt at Fitch, said at press briefing in Hong Kong on Oct. 19.
The government raised 42.59 billion rupees in the year ended March by selling shares in state-run companies, according to the disinvestment department’s website. Policy makers didn’t set a target in the years from 2006 to 2009, and the government failed to raise the 40 billion rupees it sought in 2005.
It will raise more than 150 billion rupees from the sale of a stake in Coal India Ltd., after setting the offer price at the top end of the price range it had indicated, Coal Minister Sriprakash Jaiswal told reporters today in New Delhi.
Sales of shares in Power Grid Corp. of India Ltd., Manganese Ore (India) Ltd., Shipping Corp. of India Ltd., and Hindustan Copper Ltd. will be completed by December, Disinvestment Secretary Sumit Bose told reporters on Oct. 19. The government also plans to sell stakes in Indian Oil Corp., Steel Authority of India Ltd. and Oil & Natural Gas Corp.
“They will comfortably be able to surpass their disinvestment target, that will give them some elbow room in potentially reducing the budgeted borrowing number,” Rajeev Radhakrishnan, a Mumbai-based money manager at SBI Funds Management, said in an interview on Oct. 21.