Record Rating Upgrades Attract Pimco, Aberdeen as Sales Soar: India Credit
Debt ratings for Indian companies are improving at an unprecedented pace, helping attract the world’s biggest fund managers to record bond sales.
Crisil Ltd., the Indian unit of Standard & Poor’s, raised rankings of 253 local borrowers in the six months ended Sept. 30, the most since it started business in 1987, it said on a conference call yesterday. Crisil downgraded 111 borrowers. ICRA Ltd., an arm of Moody’s Investors Service, upgraded 97 companies and cut 62, the best ratio since 2005, data compiled by Bloomberg show.
The credit quality of companies in India is improving as earnings head for a record increase, attracting money managers including Pacific Investment Management Co., Western Asset Management Co. and Aberdeen Asset Management Plc, which oversee a combined $1.8 trillion of assets, to their debt. Similar ratings ratios for Brazil, Russia and China are even stronger, Bloomberg data show.
“Debt inflows will remain strong thanks to the improving creditworthiness of companies,” Manoj Swain, chief executive officer at Morgan Stanley India Primary Dealer in Mumbai, a unit of the New York-based bank, said in an interview. “The Indian economic recovery is still in the early stage, and that means corporate profitability will get even better.”
International investors have purchased $10 billion in Indian rupee debt in 2010, more than the combined amount for the previous eight years, according to the Securities and Exchange Board of India. Prime Minister Manmohan Singh lifted limits in September on overseas ownership of local corporate bonds to $20 billion from $15 billion and doubled the cap on government notes to $10 billion.
Indian companies have sold 1.53 trillion rupees ($34.5 billion) in bonds this year, up from 1.48 trillion rupees in all of 2009 and the most since Bloomberg started tracking the data. Local-currency debt sales climbed 42 percent to 14.6 billion real ($8.7 billion) in Brazil and are lagging behind last year’s amount by 25 percent in Russia, the data show.
“The credit outlook for Indian companies continues to be encouraging,” Anjan Ghosh, head of corporate ratings at New Delhi-based ICRA, said in an interview yesterday. “As long as liquidity and risk appetite remain adequate, credit spreads will stay low or contract.”
The difference in yields between AAA rated five-year corporate bonds and similar-maturity federal notes has shrunk to 64 basis points from the all-time high of 413 basis points, or 4.13 percentage points, two years ago, Bloomberg data show. The spread has narrowed by 23 basis points this year. The gap for securities rated BBB contracted 83 basis points to 309.
Tata Motors Ltd., the Mumbai-based owner of Jaguar Land Rover, had its rating raised in August for the first time in almost two years by S&P. The grade for Hindalco Industries Ltd., India’s biggest aluminum producer based in Mumbai, was boosted by Crisil in September to AA positive. Yesterday, Crisil pointed to construction, metals and autos as the industries with the most upgrades.
Global money managers are pouring money into Indian assets as company earnings rise, the currency rallies and yields climb. The rupee has surged 6 percent against the dollar since August, the best performer among Asia’s 10 most-traded currencies after South Korea’s won. The dollar touched a two-year low of 43.98 rupees on Oct. 15 and traded today at 44.4 rupees, little changed this week.
The yield on the 7.8 percent government note due May 2020 climbed seven basis points yesterday and rose one basis point today to 8.15 percent, the highest level for a benchmark 10-year bond in two years.
State Bank of India plans to complete its first bond sale to individual investors two days earlier than the scheduled closing date of Oct. 25 after receiving bids for 19 times the 5 billion rupees offered in the first day the securities went on sale on Oct. 18, Chief Financial Officer S.S. Ranjan said by telephone yesterday from Mumbai.
Western Asset Management Co. has been buying Indian debt in dollars and rupees, Rajeev De Mello, the Singapore-based head of Asian debt at the firm, said Oct. 19. “We like bonds of both banks and companies in India,” he said.
Aberdeen Asset has been investing in India’s corporate and government debt, money manager Kenneth Akintewe said in an Oct. 15 interview. Pacific Investment, known as Pimco, is buying “high-quality” bonds in emerging markets including India, Chief Operating Officer Douglas Hodge said in an Oct. 14 interview.
Credit-default swaps used to protect against losses on the debt of nine Indian companies fell in the past three months, according to data provider CMA. Swap prices dropped to 163 basis points from 201 at the end of July for State Bank of India, the nation’s largest lender, and to 165 from 169 for Reliance Industries Ltd., the country’s biggest company by market value. Swap prices typically decline when investor sentiment improves and rise as it deteriorates.
Higher commodity prices and borrowing costs pose a risk to creditworthiness in India, Raman Uberoi, Mumbai-based senior director at Crisil, said on the conference call.
“Input costs are rising as commodity prices firm up and the cost of funding too is increasing, following recent monetary policy measures,” Uberoi said.
The number of ratings with “positive” outlooks climbed to a three-year high of 3.8 percent of the total, Crisil said in a statement yesterday. Those with “negative” prospects fell to 10.2 percent as of Sept. 30, from a record 16.7 percent a year earlier.
Credit quality is improving across emerging markets. S&P raised at least 19 company ratings and lowered two in Brazil this year, while it upgraded 22 and downgraded five in Russia, Bloomberg data show.
Moody’s boosted the Indian government’s local-currency credit rating one level to Ba1, the highest non-investment category, in July. That was the first increase since 1998 and put India on par with Greece, Egypt and Morocco. India’s foreign-currency debt rating held at Baa3.
India’s 10-year yield is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 12.1 percent. Comparable securities offer 7.34 percent in Russia and 3.61 percent in China and 2.47 percent in the U.S., according to data compiled by Bloomberg.
“India is the region’s highest-yielding market with acceptable ratings,” Akintewe at Aberdeen in Singapore said. “We are primarily focused on high-yielding assets in Asia and have found the debt of India’s public-sector companies quite attractive.”
Earnings for companies making up the Bombay Stock Exchange’s Sensitive Index jumped 56 percent this year to 1,027 rupees a share and are poised for the biggest annual gain since Bloomberg started compiling the data in 2000. The gauge may climb to 1,140 in the next 12 months, analyst estimates compiled by Bloomberg show. All members of the index that reported profits this month beat forecasts, led by Larsen & Toubro Ltd., India’s biggest engineering firm, and Housing Development Finance Corp., the largest mortgage lender.
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