After Reliance Industries Ltd and Delhi International Airport Ltd, more companies may tap offshore bonds

MUMBAI: The successful bond raising by Reliance Industries Ltd and Delhi International Airport Ltd (DIAL), with most competitive pricing at the beginning of the year, may prompt top-rated companies to take the same route.

"We see rising interest among Indian issuers to tap the offshore bond market," said Rakesh Garg, managing director and head of global finances, Barclays India. "US treasury bonds are at historically low levels. This will help issuers with finer pricing. India is in a sweet spot, given the status of other emerging markets like Brazil and Russia."

Last week, BBB+ rated Reliance Industries raised $1 billion by selling offshore bonds at 4.125% with 10-year maturity. Final pricing was derived after adding about 240 basis points over and above the 10-year US Treasury bond yield. Initially, investment bankers were expecting 265 bps spread, but high investor response drove the final yield down. RIL had received bids for about $4.5 billion. A basis point is one hundredth of a percentage point. The scene was no different when BB-rated DIAL on Tuesday sold bonds for $289 million with 7-year maturity at 6.125%.It was priced after adding about 452 bps above the US Treasury bond yield.

International investors bid for a massive $5 billion, reflecting the robust demand pushing the yield down as bankers were expecting the yield at 6.50% initially. “In both cases, we saw a lot of quality investor interest, the final price was much better than original pricing indications, and the bonds are now quoting at a significant premium to the issue price,” said Ananth Narayan, regional head of financial markets, South Asia, Standard Chartered Bank.

"Reliance was the lowest coupon ever achieved by an Asia ex-Japan corporate issuer in the BBB category for 10 years. DIAL was the first Asian high yield issuance in 2015, terming out their existing debt at lower rates." In the secondary market, Reliance bonds are now yielding 20 bps lower than the final one.

"The USD bond market outlook for 2015 is expected to be robust, following a strong 2014, supported by high liquidity, a continued low interest rate environment and strong global investor appetite for quality Indian paper," said Neville Fernandes, head of debt capital markets origination, Citi India. In the US, the yield on the benchmark 10-year Treasury bonds dipped to about 20-month low as prices moved up. It is now trading at 1.80%. The yield on the 30-year paper, too, hit a record low and is trading at 2.38%. Cross-border debt issuances by Indian companies could nearly double to test the $25-billion mark over the next few years, from $14 billion in 2014, said Standard & Poor’s. Arelatively stable exchange rate is also cushioning issuers who normally hedge their borrowing exposures.

Indian companies which bring money back home are not fully hedging the currency risk at least for now, according to some bankers. "We expect Indian companies with natural hedges against currency risk will lead the tally in bond issuance in 2015," said Philipp Lotter, Moody's managing director.