Mumbai: Bond sale by non-financial sector firms is on course to touch a record USD 14 billion this year, helped by improved investment climate which has increased investor appetite for Indian papers and sliding hedging costs on the back of a strong rupee, says ratings agency Moody's.
Stating that forex debt raising will be even higher in 2015, Moody's Investors Service today said, "it sees foreign currency bond issuance by non-financial Indian firms will reach a record high of USD 13-14 billion in 2014."
The agency attributed the declining cost hedging as one of the drivers the rising issuances, which will be higher in 2015.
So far this year, around 20 companies, including financial players like banks, have raised USD 14.7 billion in foreign debt, according to merchant bankers.
Its vice-president Vikas Halan said, "an improved economic outlook for the country has increased investor appetite for Indian credits."
For the first seven months of the year, the cross-border bond issuances by non-financial sector corporates reached USD 11.2 billion, as against USD 10.2 billion that were issued during the entire 2013.
The jump in issuances will be led by oil and gas for there natural hedge against exchange rate risks, it said, adding, export-oriented sectors like pharma, IT and BPO companies will also be more active, while large requirement of funds will make the infrastructure companies be there.
The agency said credit spreads on foreign currency denominated bonds issued by domestic companies have tightened more than the spreads on foreign currency bonds across Asia between January and August, following this recent trend of a lift up in investor appetite.
"In addition, more companies will tap the international markets to fund their growth and investments because the government has relaxed certain regulations like slashing of withholding tax on interest payments to global investors, and raising the amount of guarantees that domestic entities can provide for foreign currency debt issued by their overseas subsidiaries," Halan added.
Moody's said that even though the interest rates on foreign currency bonds are lower than the same on rupee- denominated bonds, the cost of hedging against the exchange rate risk makes it expensive for the companies to borrow in foreign currency.
"It, therefore, makes sense only for companies with natural hedges against currency fluctuations to issue bonds in foreign currency," the agency said, adding, if the rupee stabilises, the cost of hedging will also fall, which will prompt more companies to hit the global debt street.
Domestic oil and gas, metals and mining, and telecom players issued 67 percent and 76 percent of the forex bonds in 2013 and 2014, respectively, Moody's added.
