Rupee Bonds Cheaper Than Loans Make Arrangers Bullish for 2016by
Offerings will probably rise to a record this year: survey
`Bonds a preferred route for Indian companies:' Axis Bank
Rupee bond issuance will probably rise to a record this year as notes offer companies savings of as much as 1 percentage point over loans.
Offerings will range between 4 trillion rupees ($59.9 billion) and 4.5 trillion rupees in 2016, according to nine of 20 bankers surveyed by Bloomberg. Six respondents predicted even higher sales and five forecast lower. ONGC Mangalore Petrochemicals Ltd., a project by India’s biggest energy explorer, is planning a debut sale, while mortgage lender Housing Development Finance Corp. is looking to raise at least 5 billion rupees.
“There’s still a 100 basis points difference between the AAA-rated yield and banks’ lending rate, which makes bonds a preferred route of borrowing,” said Shashi Kant Rathi, head of investments and capital markets at Axis Bank Ltd., the top arranger for 2015.
Loan growth in Asia’s third-largest economy slowed in the six months through September, as banks struggle to pare stressed assets from a 13-year high. Bond sales in 2015 fell just short of 2014’s record as the yield on top-rated five-year securities ended the year at 8.40 percent, while the nation’s largest lender State Bank of India’s base rate stands at 9.30 percent.
The need to refinance existing debt as well as fund infrastructure needs and spectrum purchases will see telecommunications companies turning to the bond market this year, according to HDFC Bank Ltd., the No. 2 arranger. Market leader Bharti Airtel Ltd. plans to spend 600 billion rupees over three years to improve its network and fend off competition, as wireless operators brace for Mukesh Ambani, the nation’s richest man, to enter an already crowded market.
Indian firms sold about 4 trillion rupees of notes last year, compared with 4.1 trillion rupees in 2014, data compiled by Bloomberg show. The survey on 2016 issuance includes nine of the 10 biggest arrangers of 2015. A recent move by the Reserve Bank of India will make it more viable for companies to issue notes for project-related financing, the top two arrangers said.
The so-called “partial credit enhancement scheme will make it easier for road builders and other infrastructure-related firms to tap the corporate-bond market,” said Sharad Rungta, head of debt capital markets and syndication at HDFC Bank. Growth in issuance should continue, he said.
The yield on AAA-rated 10-year company notes dropped for a second year and tumbled 120 basis points since the end of 2013 to 8.42 percent on Dec. 31, data compiled by Bloomberg show. It was at 8.40 percent on Tuesday. The yield on similar-maturity benchmark government bonds declined 107 basis points in the last two years and was at 7.75 percent in Mumbai on Wednesday, while State Bank of India’s base rate fell only 70 basis points in the period.
India’s economy grew 7.4 percent in the July-September period from a year earlier, after a 7 percent expansion the previous quarter, official figures show.
At least 2.12 trillion rupees worth of local-currency bonds are due to mature this year, data compiled by Bloomberg show. Housing Development, the second-biggest borrower last year, has 213.1 billion rupees maturing in 2016, followed by last year’s top issuer Power Finance Corp., with 179.4 billion rupees, the data show.
“I expect issuance to remain robust as the economy revives, with financial companies continuing to command a lion share of the market,” said Sandeep Bagla, Mumbai-based associate director at Trust Capital Services India Pvt., the No. 3 arranger last year. “Companies that have a strong visibility of earnings will find it easier to refinance.”