The first half of the year has seen some sporadic fund raising efforts by Indian companies through the international route. Is this a reflection of dimming appetite for funds?
Pre-second wave, the first three months were very positive and a lot of issuers accessed the market since they had pretty much sat out during 2020. Thereafter, as the second wave hit, the offshore bond markets behaved very maturely – we saw spreads widen a little bit and then start retracing. Things have been relatively a lot slower, since the second quarter of the calendar. This is not because spreads had ballooned like last year or because investor demand has become selective, but simply because a lot of issuers had to tap the market front-loaded. So the offshore bond market has continued to form a very supportive backdrop to dollar issuance, and we expect issuance activity to accelerate in this quarter.
So you do expect the second half of the year to be action-packed?
We are expecting an uptick in demand for financing from companies across a variety of sectors and to meet a variety of needs.
Is this because companies have capex plans or is it because they want to refinance existing borrowings with cheaper overseas money?
Well, traditionally companies have tapped the international markets for a number of reasons. Some sectors are constant consumers of capital due to their scale and growth. I would put renewable energy and the finance sector entities in this category. These sectors have consumed a fair amount of capital from domestic financial markets, and to that extent see this as a solid diversification play away from local banks, and therefore look at international markets to meet the deficits. There is also a continued need for project finance by the wider infrastructure sector, which frankly continues to dominate Indian offshore issuance. The demand from Indian companies for fresh funding or refinancing projects in sectors such airports, ports, energy, oil and gas and telecom remains strong
Are we likely to see new types of companies in other sectors also tap the international route?
It is an issuer base that is constantly diversifying and expanding. In very welcome sectoral diversification trends, both Information Technology and high-grade manufacturing companies have raised money overseas through bond issuances. This shows that investors are interested in a wide range of credits, across multiple categories and multiple price points, and also provides investors with a wider set of opportunities to fund India Inc. rather than a very concentrated sectoral or issuer profile
What about financial sponsors?
Yes there will be demand from financial sponsors who continue to be very active in India and will need to borrow to fund those investments
Indian companies seem to have largely raised money through bond issuances in the international market. Are you seeing them becoming active in the foreign currency loan market?
The overseas loan market is also expected to pick up in the second half this year. The natural fit would be high-grade borrowers who don’t have international ratings, or who want to look at slightly smaller deals than would make sense for the bond markets, or would just like their fundings/ drawdowns to be staggered. So in that sense, the loan market will probably offer more options to them. The loan market is also likely to continue to pick up as acquisition-related situations pan out and as there is more activity from financial sponsors
I’m curious about ESG (environment, social governance) financing. That seems to be the buzz word. Is it really becoming a substantial part of the market?
A lot of the larger funds have made ESG commitments. They have ESG focused funds and portfolios. We are seeing investors showing a preference for ESG compliant issuances and ESG-linked securities. For issuers, this has led to larger order books, more sticky orders and some fairly high-quality accounts participating in size from their ESG portfolio. I would think more than 40-50% of issuances are expected to have an ESG element this year.
