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Indian Refinancing Costs May Jump on Europe Crisis, Moody’s Says

The risk of Europe’s credit crisis spreading to Asia may widen the extra yield investors demand to own Indian companies’ overseas bonds, increasing refinancing costs for borrowers in the South Asian nation, Moody’s Investors Service said today.

“Some issuers, including Indian Oil Corp., will need to refinance their short-term foreign currency bank debt in the next 12 months,” Moody’s said in a Dec. 14 research report. “That may get challenging if Europe’s credit crunch reaches Asia and causes spreads to widen or curtails lending.”

Use of overseas debt in the capital structure is increasingly common for “emerging” Asian companies because it’s cheaper to borrow in international markets than at home, Moody’s said. The average spread over Treasuries for U.S. dollar corporate bonds in India widened 282 basis points this year to 607 basis points, the biggest increase since 2008, HSBC Holdings Plc indexes show.

Yields on five-year rupee bonds rated AAA by Standard & Poor’s Indian unit Crisil Ltd. rose 43 basis points this year to 9.37 percent versus a 225 basis-point rise in India’s repurchase rate to 8.5 percent, according to data compiled by Bloomberg.

Moody’s rates India’s rupee sovereign debt at Ba1, the highest non-investment grade and the same level as Indonesia and Morocco. India’s foreign-currency debt is rated at Baa3, the lowest investment grade.

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