The spread of Indian dollar bonds over their benchmark US treasuries had widened in the last three months as global investors were wary of the impact of the second wave of Covid in India which cause widespread destruction of lives and livelihoods.
For example, the yield on Aditya Birla group‘s cement company
which has priced its debut 10 year $400 million bond at 167.5 basis points above the benchmark US treasury in February, climbed to 195 basis points above the benchmark and has now come back to trade at a spread of 171 basis points. One basis point is 0.01 percentage point.
Sovereign backed Exim Bank which had started the fund raising spree in 2021 with a $1 billion 10 year issue at 145 basis points above the US treasury had seen its spread increase to 180 basis points above the treasury before easing to 165 basis points currently.
Yields on the shorter tenure five year bond for some riskier credit has even contracted in the secondary market compared to its issue price indicating the strong demand for Indian paper among global investors.
For example, Clean Renewable Power, a subsidiary of the Hero Group raised $363 million by selling bonds maturing in six years to investors at 4.25% yield in March which is now trading at 3.88%. Similarly, renewable energy company Greenko raised $940 million by selling a five year bond to investors at 3.85% at the end of March. That bond offering which is the largest and cheapest offering for a non investment grade paper is now trading even lower at 3.25% yield. This despite the fact that the five year US treasury has risen 60 basis points and the 10 year note is up 80 basis points since January.
Bankers say all indications are for a revival in issuances from India.
“International markets continue to be very buoyant and Indian credits are very well bid by the international investors. The strong performance of Indian issuances in the first half of 2021 sets the stage very well for more issuances in the second half of the year,” said Hardik Dalal, head of loans and bonds at Barclays Bank India.
Indian companies have raised more than $14 billion in the first six months of 2021 surpassing the $14 billion raised in pandemic impacted 2020. Bankers estimate that dollar bond issuances from India will overwhelm the $26.5 billion raised in 2019, a record.
The high demand for environment social governance (ESG) complaint bonds, proceeds from which are used for environment friendly or social causes and investor diversification away from China which corners more than 60% issuances from emerging markets will drive imvestors towards Indian paper.
“Spreads on offshore bonds have behaved in a much more orderly manner in 2021, compared to our experience during the first wave in 2020. The massive supply in USD bond market during the Jan-March period has potentially set the stage for volumes to exceed the records set in 2019,” said Chetan Joshi, head debt financing, HSBC India.
Bankers said companies are power, renewables and also auto sectors are waiting for the right opportunity to raise money from abroad.
The only risk is a much talked about third wave of the pandemic which if as severe as the second could disrupt livelihoods and push back economic recovery.