Foreign bond market hums again as spreads decline

Foreign bond market hums again as spreads decline

Abhineet Kumar / Mumbai October 16, 2009, 0:10 IST
The 18-month drought is about to end, with several Indian companies and financial institutions planning to tap the foreign bond markets, now that spreads have declined 200 to 300 basis points.
Spreads are the rate that is paid over the benchmark Libor (London Inter Bank Offered Rate) as the cost of borrowing for overseas bonds.
According to Prime Database, a Delhi-based firm providing data for capital markets, six entities including Tata Group’s holding company, Tata Sons, and four banks plan to raise over $12 billion (around Rs 55,000 crore) through various instruments like issuance of bonds in the foreign markets.
The last such issue was by State Bank of India (SBI) in April 2008 to raise Rs 467 crore. It was the only issue in that year after the liquidity crunch pushed spreads to 600 to 700 basis points over Libor for five-year bonds. Before the credit crunch in 2007, the spread for five-year bonds were 60 to 70 basis points. Indian companies raised Rs 35,185 crore from the foreign market that year.
Investment bankers say SBI is now planning to raise $1 billion (about Rs 4,700 crore) by issuing bonds in the foreign market at the rate of 200 basis points over Libor. The road show for the issue will start this week.
Banks such as HDFC Bank, ICICI Bank, Bank of Baroda are also firming up their plans to tap the foreign bond market along with SBI. The other entity includes non-banking finance company, India Infrastructure Finance Company.
“Traditionally, dollar funds have been cheaper than rupee funds,” said Prakash Subramanian K V, managing director, capital markets, Standard Chartered Bank. “But the credit crisis resulted in rising spreads on Indian credits, making it difficult for them to raise dollar funds. Over the last quarter, the dollar markets have shown signs of interest in Indian credits and spreads have also come off substantially,” he added.
Ravi Kapoor, managing director, capital markets at Citi Global Markets India, said spreads had tightened substantially, making the foreign bonds market attractive again. “Companies and banks also need to diversify their funding base,” he said.
“Foreign bonds are also popular for raising resources for over 10-year period,” said Prithvi Haldea, chairman and managing director, Prime Database.