Barclays Capital jumped 24 places, the biggest climb by any bank in 2010, to become the No. 4- ranked bond underwriter in India after arranging sales to fund the nation’s growing transport and energy infrastructure needs.
The investment banking unit of London-based Barclays Plc helped Indian borrowers issue 151 billion rupees ($3.4 billion) of bonds this year, compared with 3.9 billion rupees in all of 2009, according to data compiled by Bloomberg. Almost half the money raised was for companies including Rural Electrification Corp., Tata Power Co. and Indian Railway Finance Corp. that are building or funding road, power and rail projects.
“We expect increased issuance from infrastructure companies next year,” Jaideep Khanna, managing director and head of investment banking at Barclays’ India unit, said in an e-mailed response to questions on Dec. 3. “Overseas investors’ interest in Indian credit is increasing” and the bank expanded its origination, trading and sales teams to help meet that new demand, he said, without being more specific.
Indian companies raised a record 1.7 trillion rupees from bonds this year in an economy that New York University Professor Nouriel Roubini predicts may expand more than China’s in the next decade if the state develops public infrastructure and removes barriers to foreign investment. Prime Minister Manmohan Singh’s government plans to invest about $1.5 trillion in the 10 years to 2017 on improving India’s transport and power networks, which are ranked below those of war-ravaged Ivory Coast.
India’s environment ministry approved construction of a 150 billion-rupee second airport in Mumbai last month to increase the allure of the nation’s financial capital, Civil Aviation Minister Praful Patel said on Nov. 22. Five road projects worth a similar amount will be awarded to developers by April, Roads and Highways Minister Kamal Nath said on Nov. 30.
Elsewhere in India’s credit markets, 10-year government bonds fell last week by the most in more than five months as a shortage of cash in the banking system reduced demand for debt. Rural Electrification, the state-controlled lender to power projects, postponed a $500 million bond sale to January because of what an official called “adverse market conditions.”
Indian banks’ loans rose by 272.7 billion rupees in the two weeks ended Nov. 19, raising outstanding advances to 35.6 trillion rupees, according to central bank data.
The yield on the 7.80 percent government note due May 2020 rose 21 basis points last week to 8.18 percent before climbing to 8.197 percent today, according to the Reserve Bank of India’s trading system.
“Investors seem to believe the central bank may not take any measures to ease liquidity until the next policy review on Dec. 16,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai.
Rural Electrification Corp. hired Credit Agricole CIB, Royal Bank of Scotland Group Plc, and Standard Chartered Plc to manage the company’s bond sale until the Irish debt crisis and tensions in the Korean peninsula forced it to postpone the offering, Finance Director Hari Das Khunteta said in a phone interview Dec. 3 from New Delhi.
Indian local-currency debt returned 4.2 percent in 2010, according to indexes compiled by HSBC Holdings Plc, as the Reserve Bank raised borrowing costs by 150 basis points to 6.25 percent. Investors in China earned 1 percent, the least in the region, the indexes show.
Record Equity Investments
The yield on the 7.8 percent government bond due May 2020 fell 4 basis points in November, the only debt among the so-called BRIC nations to rally in the period. It is 516 basis points, or 5.16 percentage points, above Treasuries of similar maturity, according to Bloomberg data.
The rupee rose 1.6 percent last week to 45.11 to the dollar, the biggest gain since the period ended Oct. 1, as Asia’s second-fastest growing major economy draws record investment in local stocks. Overseas investors bought $416 million of Indian equities last week, taking purchases this year to a record $29.1 billion, according to the Securities & Exchange Board of India.
Credit-default swaps on State Bank, a proxy for the Indian sovereign, rose 3 basis points to 175 basis points last week, according to data provider CMA in New York. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Sales Barclays helped arrange for Rural Electrification included the New Delhi-based company’s July issue of 18 billion rupees in 8.75 percent bonds due 2025, Bloomberg data show. The extra yield investors demand to own the notes instead of similar-maturity government debt narrowed to 33 basis points as of Dec. 3 from 71 basis points on Aug. 3, according to Fixed Income Money Market & Derivatives Association of India prices.
Tata Power, an electricity supplier to Mumbai and its suburbs, sold a series of one- to 15-year rupee notes with assistance from Barclays. The yield on the $150 million in 20-year, 8.5 percent bonds the company issued in 1997 fell to 6.19 percent as of Dec. 3, according to Elara Capital Plc prices on Bloomberg.
The volume of rupee-denominated bond sales may climb by as much as 30 percent in 2011 compared with this year, according to Barclays’ Khanna, who is based in Mumbai.
ICICI Bank Ltd., India’s second-largest lender, climbed eight places to become the No. 2 bond arranger in 2010, managing almost 200 billion rupees of sales, Bloomberg data show. Axis Bank Ltd. holds the top place for a third straight year after managing 254.3 billion rupees of offerings.
For companies seeking project finance in India “the loan market is costlier and there are no bank loans available for 10-year or 15-year maturities,” Khunteta, the Rural Electrification finance director, said in a phone interview. “Banks cannot lend below 8.5 percent after the introduction of the base rate system this year,” he said.
Indian banks must not lend below their published base rate, according to Reserve Bank of India rules that took effect from July 1 as part of efforts to increase pricing transparency. State Bank of India, the nation’s largest lender, extends credit at a spread above its 7.6 percent base rate while ICICI charges at least 7.75 percent interest.