India Inc bucks slowdown, raises $7.6 bn in 1st half

Despite global uncertainty, India Inc has raised an impressive amount through overseas bonds in the current calendar year, drawing close to its collection during the whole of 2010.

In fact, the companies have already raised $8.9 billion even before this year-end as against $9 billion raised last year, says Dealogic.

This year saw companies having struck 22 deals so far as compared to 17 in 2010, according to statistics provided by the platform that global and regional investment banks worldwide use to help optimise their performance and improve competitiveness.

Leading arrangers in the country believe active tapping of foreign funds during the first half of the year enabled the amounts raised to be at par with that of 2010.

RBS India notes more overseas bond issuances in the first half this calendar year, with a number of debut issuances.

"Had the euro zone crisis not aggravated, the total amount raised this year could have been much higher," says Manmohan Singh, managing director of the financial services group.

The amount India Inc raised in the first half of 2011 stood at $7.6 billion as against $2.2 billion in the year-ago period. Experts feel market stability and a strong currency encouraged firms to go ahead and raise money abroad.

Edelweiss Capital says a strong rupee (around 44 per dollar) and stable economy during the first half of the year helped companies actively raise funds.

"The second half, though, has become sluggish," says Ajay Manglunia, head (fixed income) of the firm.

"This stems from a worsening of the global economic situation that has left companies look at consolidating their positions, he adds. Also, "the depreciating rupee has made overseas funds more expensive, as the hedging costs have gone up".

The Euro zone debt crisis and lack of

consensus on smoothening out of the situation have led to risk aversion among investors.

The investment in dollar bonds for safety against market volatility has caused a dollar shortage and a subsequent rise in the cost of funds raised abroad.

Most firms and financial institutions have been deferring their foreign fund-raising plans, as investors are asking for higher yields (despite low treasury yields), keeping in mind the current market uncertainty. 

However, the country's top debt arrangers feel some companies with large funding needs are still looking at the foreign window for tapping funds.

RBS's Singh, also head of the firm's debt capital markets, notes that companies having large capex and acquisition plans will evaluate the offshore bonds as a financing option.

"A few borrowers also evaluate the option of raising funds through offshore renminbi markets," he says. "We are of the view that the fund-raising plans of the firms are likely to be revived between January and March in calendar year 2012."

While dollar bonds were more preferred, borrowers actively smell opportunities in dimsum or yuan-denominated bonds.

In fact, the second half of the current calendar year saw only IDBI Bank mustering around $1 billion abroad, via dimsum bonds.

In 2010, Indian firms had raised $ 7.6 billion in the second half through overseas bonds.

Also, the efforts made by major central banks to infuse liquidity in the global financial system have already started giving borrowers some short-term relief.

"Efforts made by the major central banks to infuse liquidity in global markets will certainly curb volatility," says Singh.

However, the effectiveness of the measure would depend on the way the euro zone situation pans out.

"While the Italian yields have fallen from 7 to 6 percent in the last few days ,  this is certainly not a permanent solution," Singh adds.