Mittal Debuts Dollar Bonds Amid Record-Low Yield: India Credit

Billionaire Sunil Mittal’s Bharti Airtel Ltd. raised $1 billion selling dollar bonds, the second Indian company to conduct a maiden offering in a week as record-low yields drive overseas issuance.

HDFC Bank Ltd. raised $500 million on Feb. 28, taking total foreign borrowings in the first two months to a six-year high of $2.94 billion, according to data compiled by Bloomberg. Average dollar yields for Indian issuers fell 44 basis points, or 0.44 percentage point, in 2013 to an all-time low of 3.82 percent, HSBC Holdings Plc indexes show. A similar gauge for all Asian U.S. currency debt added 11 basis points to 3.53 percent.

Bharti, the nation’s largest mobile-phone operator, issued 5.125 percent, 10-year notes to help fund $2.3 billion of capital spending after interest costs contributed to a 72 percent slump in its net income last quarter. India slashed a tax on overseas borrowings in September. IDFC Ltd. and Jindal Steel & Power Ltd. are among issuers seeking to take advantage of a surge in global cash availability as central banks from the U.S. to Europe and Japan print money to boost growth.

“It’s very attractive to raise cheaper overseas capital, which works to the advantage of Indian issuers,” Prabal Banerji, chief financial officer at Adani Power Ltd., based in the western Indian city of Ahmedadbad, said in a phone interview yesterday. “It’s cost-driven issuance by companies, with liquidity and tenor as added advantages.”

Shrinking Spreads

The yield premium on Indian companies’ dollar bonds over U.S. Treasuries has decreased 48 basis points, 0.48 percentage point, this year to 319, near the lowest since April 2011, according to HSBC data. Five-year rupee debt costs for firms rated AAA by Standard & Poor’s Indian unit Crisil Ltd. fell 17 basis points since Dec. 31 to 8.93 percent, according to Bloomberg data.

HDFC Bank, India’s biggest lender by market value, sold 3 percent, five-year notes listed on Singapore Stock Exchange, the Mumbai-based lender said in an exchange filing Feb. 28.

“2013 should definitely be one of the better years for offshore borrowing by Indian issuers,” Maneesh Malhotra, Mumbai-based head of debt capital markets at HSBC, said in a phone interview on March 1. “Demand for Indian debt continues to remain strong and spreads have narrowed as the outlook on Indian macro-economy is showing a stabilizing trend.”

Bharti agreed to pay an extra amount of 325 basis points on its debut dollar bonds over similar-dated U.S. Treasuries, according to data compiled by Bloomberg. Part of the proceeds from the notes, rated BBB- by Fitch Ratings Ltd. and BB+ by Standard & Poor’s, will be used for debt repayments.

Jindal Steel

Jindal Steel & Power, India’s largest steelmaker by market value, plans to borrow $400 million overseas, Chief Financial Officer Sushil Maroo said in New Delhi on Feb. 12, without giving details. IDFC, India’s biggest lender to transport networks, plans to sell notes denominated in the U.S. currency, Chief Financial Officer Sunil Kakar said Feb. 4.

“Risk aversion is easing as issuers are probably willing to look beyond some of the risks at least for the short term,” Sergey Dergachev, a portfolio manager who oversees about $9 billion of assets at Union Investment Privatfonds in Frankfurt, said in a telephone interview on March 1. “We expect a further shrinkage in spreads because of this sentiment and borrowers should come to the market now.”

The yield on HDFC Bank’s 3 percent bonds fell 2 basis points today to 3.06 percent in the first decline since trading in the notes started March 1, according to Royal Bank of Scotland Group Plc prices.

Rupee Yields

Yields on the 10-year Indian government bonds fell 18 basis points so far this year, narrowing the difference to similar-maturity U.S. Treasuries to 599. The yield on the benchmark 8.15 percent note due June 2022 fell two basis points to 7.87 percent today, data compiled by Bloomberg show.

Rupee-denominated sovereign bonds returned 11.01 percent in the past year, the most after the Philippines among Asia’s 10 biggest local-currency debt markets tracked by HSBC. The rupee rose 0.4 percent to 54.64 per dollar in Mumbai today.

Indian companies raised a record $9.8 billion in 2012 selling foreign-currency securities, data compiled by Bloomberg show, as the average yield on dollar notes issued from the nation slid 257 basis points in the biggest drop since 2009.

Corporate bond risk in India fell this year. The average cost for credit-default swaps insuring against default for five years the debt of seven Indian issuers slid 18 basis points to 252, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in privately negotiated markets.

Rising Confidence

Local borrowers are tapping overseas markets for funds as Indian policy makers’ efforts to strengthen the economy help revive investor confidence in the nation. Since mid-September, Prime Minister Manmohan Singh has allowed more foreign investment in industries and markets and cut taxes on companies’ overseas debt to spur growth. Reserve Bank of India Governor Duvvuri Subbarao reduced the benchmark repurchase rate on Jan. 29 by 25 basis points to 7.75 percent, the first reduction in nine months, to support the economy.

Finance Minister Palaniappan Chidambaram’s goal to narrow the budget deficit to 4.8 percent of gross domestic product in the year through March 2014, from an estimated 5.2 percent in the preceding 12 months, is “realistic” and credit-positive for the sovereign, Atsi Sheth, an analyst at Moody’s Investors Service, wrote in a report yesterday. Chidambaram unveiled the annual budget on Feb. 28.

“With the help of the positivity that is prevailing among investors and the comfortable liquidity, issuers with strong fundamentals should be able see strong demand,” Clifford Lee, the head of fixed-income at DBS Group Holdings Ltd., said by telephone on Feb. 27. “I believe the price at which prospective issuers will be able to sell would be in line with the market conditions and they won’t have to bear a premium.”

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