Decade-Low Margins on Dollar Loans for Indian Firms Spurs Deals

  • Local companies seek about $6 billion of overseas loans
  • ONGC, Reliance, Indian Oil among foreign-currency borrowers

India’s biggest companies can borrow dollars from global banks at the lowest margins since 2007 and borrowers are taking notice as they do more loan deals.

India’s second-largest company Reliance Industries Ltd. is marketing a $1.75 billion loan deal that may result in the lowest offshore borrowing cost for an Indian company so far this year. India’s largest oil producer Oil & Natural Gas Corp. sent requests for proposals last month to banks for a $677 million-equivalent loan.

“It’s as good as it’s going to get for Indian borrowers,” said Yogesh Venkatachalam, director for loan syndications at Australia & New Zealand Banking Group Ltd. in Singapore. “The question is how long could Asian banks keep funding deals at these rates.”

Most loan bankers in Asia-Pacific expect they will have to offer lower loan margins to syndicated borrowers refinancing debt in 2017 as global political and economic risks make companies more cautious about investments, according to a Bloomberg survey last month. Japanese and Taiwanese lenders will probably continue to lend top Indian borrowers, said Ajeet Agarwal, finance director at state-owned lender Rural Electrification Corp., whose $230 million facility is currently being syndicated to a group of banks.

ONGC Videsh Ltd.’s planned loan includes yen and dollar components, and adds to a pipeline of about $6 billion of foreign-currency loans being sought by Indian borrowers, up from $5.3 billion at the start of the year, according to the data compiled by Bloomberg. ONGC original loan used to acquire a stake in a Russian oil field was cheapest dollar-denominated loan from Asia-Pacific in 2016, according to data compiled by Bloomberg. 

Reliance’s deal includes a $1 billion tranche due November 2018 that pays a margin of 63.5 basis points over the Libor, according to a person with knowledge of the deal who asked not to be identified. That the lowest for the company in a decade, according to Bloomberg-compiled data.

India’s biggest refiner Indian Oil Corp. and the nation’s largest lender State Bank of India are also undertaking deals in international loans markets.

“Definitely, we will aim for an improvement on the previous deal,” Narendra Kumar Verma, managing director at ONGC Videsh, said in an interview. “When we go to the market our effort will be to get the cheapest and most efficient borrowing.”

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