Mumbai: Indian bond issuers overseas have paused their dollar fundraising plans amid demands for higher yields for investors in anticipation of an increased supply of bond sales from the country.
Bankers said State Bank of India (SBI) and Bank of Baroda (BoB) decided not to go ahead with their dollar bond issues earlier this week as investors demanded a higher spread over the benchmark US treasury, noting the huge supply from India.
"If you look at the three issues that have priced already, there is a divergence in both the size and pricing,” said a banker aware of the deals. “Clearly, investors are demanding higher yields and issuers must now decide how much is a profitable cutoff. In this scenario, it will not be surprising if Indian issuers wait for the dollar market to cool off a bit."
Last week, HDFC Bank raised $750 million by selling five-year bonds to overseas investors priced at 90 basis points above the five-year US treasury, the tightest spread over the US benchmark for any private sector bank in India, kicking off the dollar bond sale from India.
One basis point is a hundredth of a percentage point.
State-run Power Finance Corp followed on Monday, raising $300 million, pricing the five-year bond at 105 basis points above the five-year US treasury, 15 basis points higher than HDFC, despite raising less than half of the amount than the private sector lender.
"There is now a tussle between issuers and investors on what is the right price. Indian issuers are very price-conscious, and despite the RBI concessions, they do not want to overpay. So, it will all depend on who blinks first and at what price," said another banker involved in the issues.
Banks and public sector enterprises are taking advantage of the special swap arrangement by the RBI through which a bank or a PSU can sell dollars to the RBI and simultaneously agree to buy back the dollars at the end of the tenure of the loan at a fixed rate of 1.5% per annum, compounded semi-annually.
This removes the need for them to hedge their future dollar liabilities.
Development finance institutions (DFIs), the National Bank for Agriculture and Rural Development (Nabard), the Small Industries Development Bank of India (Sidbi), and the National Bank for Financing Infrastructure and Development (NaBFID) are also looking to borrow a total of $1.5 billion through foreign-currency loans news agency Reuters said.
Bankers said that though the loan market is not immune to higher rates, bilateral deals based on relationships give borrowers more flexibility.
NaBFID managing director Rajkiran Rai said the DFI is planning to raise as much as $1 billion in loans from banks, for which requests for proposals have already been called for.
"We plan to raise at least $500 million and go up to another $500 million depending on the pricing. Yes pricing has gone up but we think it is still within the 6.5% to 7% range we had thought. Loan will happen faster because bond issuance needs more work since it is our debut issue and we also need to do roadshows and meet investors," Rai said.
Public sector enterprises will also look to raise dollar funds through the loan market even as they wait for bond investors to temper their price expectations on issues from India.
