Sevenfold Jump in India Dollar Bond Sales Doesn’t Sate Funds

  • Deal pipeline includes Hindustan Petroleum, Delhi Airport, SBI
  • Standard Life bullish, not ‘at the limit of what we can hold’

Dollar bond issuance by Indian companies surged sevenfold this quarter and global funds still want more.

Firms from Asia’s third-biggest economy have raised $3.56 billion since July 1, the most since the period ended March 2015, taking advantage of record-low borrowing costs. The average yield on the debt sank to 3.81 percent last week and has fallen 59 basis points over three months, faster than declines seen in China, Malaysia and Thailand, JPMorgan Chase & Co. indexes show.

“The bond market has been pretty positive on India for a while, but there hasn’t been a lot of paper available to buy really,” said Kieran Curtis, London-based investment director for emerging-market debt at Standard Life Investments Ltd., which oversees $360 billion and bought into an issuance by Adani Transmission Ltd. “We are overweight India in our corporate allocations and aren’t at the limit of what we can hold.”

Prime Minister Narendra Modi has bolstered investor confidence in Asia’s third-largest economy by pushing through a national sales tax and ensuring continuity by promoting former Deputy Governor Urjit Patel to lead India’s central bank this month. Borrowers in emerging markets like India are also reaping benefits of extended dovish policies by major central banks, though signs the U.S. Federal Reserve will soon tighten have buffeted bond and currency markets.

State Bank of India, the nation’s largest lender, plans to raise $1 billion through securities that meet Basel III capital rules. Hindustan Petroleum Corp. is considering its first sale of either dollar notes or overseas rupee debt known as Masala bonds at the start of 2017, people familiar said on Monday. Delhi International Airport is looking to sell Masala or dollar securities in two to three months, an official said.

“Issuers in India are using the favorable current environment of decreasing yields to refinance or get new funding,” said Patrik Kauffman, a money manager at Solitaire Aquila Ltd. in Zurich, who owns debt in Delhi International. “A probable rate hike in the U.S. in the coming months could also be pushing some companies to issue debt before that happens."

While the rupee has declined 0.9 percent over four days, it is still up 0.8 percent this quarter against the dollar. The average cost of credit-default swaps protecting eight Indian companies’ debt dropped 31 basis points last month, the most since May 2014, according to data provider CMA. Local markets were shut Tuesday for a public holiday.

‘Steady Story’

BlackRock Inc. said that while it remains selective on Indian high-yield notes, it’s boosted bets on higher quality credits from quasi-sovereign entities and energy companies.

“This remains our largest overweight, with India still a steady story,” Neeraj Seth, co-head of Asia-Pacific fixed income in Singapore at BlackRock, wrote in a Sept. 6 note. “Growth is stable with inflation risks contained. Fiscal consolidation is in progress and the current account deficit narrow.”

Indian lawmakers last month approved a goods-and-services tax, which Finance Minister Arun Jaitley has said will add as much as 2 percentage points to economic growth.

“Things are getting better for India after the GST news and we expect a lot of new issuances,” said Sudip Shah, the chief executive of London-based Orbit Investment Securities Services Plc. “These are good levels for Indian borrowers but the Fed remains the key risk.”

The extra yield local firms must pay over U.S. Treasuries plunged 150 basis points from this year’s high in February to 246 on Friday, the lowest since May last year, according to JPMorgan indexes.

“The momentum we are seeing in issuance will continue,” said Raj Kothari, head of trading at Jay Capital Ltd. in London. “India’s strong macroeconomic fundamentals bode well for companies and the tighter spread is also helping.”

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