Dollar-based bonds became less important in the Indian firms significantly in the past year with offshore issuance dropping by a third to approximately 8 billion dollars, as compared to 12 billion dollars in the past year. The market participants explained the fall mainly by less price benefits in the foreign markets and presence of a good amount of liquidity in the domestic financial environment.
The ratings of the Indian corporates improved and more of them opted to refinance their borrowings in the rupee denominated bonds. High and volatile US Treasury yields made dollar financing less appealing, but contributed to why issuers could more efficiently raise funds onshore with favourable conditions on the domestic debt market. This forced a number of firms to have greater interest in issuing rupee bonds, which was rising in competition and was highly sought after by investors.
Shobhit Bahl, the head of financing, India of Barclays, observed that deep domestic liquidity was available to high-quality issuers. He clarified that they still had exposure of investors to India by on-shore bond markets and secondary dollar bond markets even as new offshore issues abated. In his arguments, the high yield in the US market together with the strong local market favoured the funding decisions in favour of the rupee bonds.
This shift was exploited by a number of large infrastructure, airport and renewable energy companies throughout the year. High profile companies like Vedanta and GMR chose domestic capital raise and exploited the active demand with a broad pool of investors like banks, mutual funds and insurance companies. It was also possible to offer longer maturities and smaller credit spreads in the rupee market to issuers than in offshore markets market dealers said.
Although there is a reduction in the issuance of dollar bonds, bankers are optimistic that there will be a recovery of offshore funds in the year 2010. It is estimated that this could issue more than $10 billion of bonds with reforms proposed to the external commercial borrowing (ECB) system of India.
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