Moody's upgrade boosts already growing confidence in Indian debt

JSW Holdings

22/11/2017 01:09

(Repeats item first carried late on Tuesday) 
    * India debt demand already relatively strong onshore, 
offshore 
    * Upgrade perfect timing for Reliance Industries $800 mln 
offer 
    * JSW Group says upgrade could save $1 mln/yr in borrowing 
costs 
    * Exhausted local debt quota for foreigners aids offshore 
demand 
    * Moody's raised sovereign rating first time in nearly 14 
years 
 
    By Krishna Merchant and Suvashree Choudhury 
    SINGAPORE/MUMBAI, Nov 21 (Reuters) - India's sovereign 
rating upgrade by Moody's is a shot in the arm for Indian 
companies looking to raise funds in offshore bond markets. 
    Driven by more attractive rates and relatively strong 
economic fundamentals among emerging markets, offshore dollar 
borrowing by Indian companies has already risen 32 percent from 
the start of 2017 to $8.81 billion, according to Reuters data. 
    The rating agency's decision on Friday to raise India's 
credit assessment for the first time in nearly 14 years to a 
notch higher than its rivals was perfect timing for billionaire 
Mukesh Ambani's Reliance Industries  RELI.NS , which announced 
plans to raise $800 million offshore just days before. 
    The upgrade to Baa2 from Baa3 lifted Indian stocks, bonds 
and currency and helped Reliance price its notes at 130 basis 
points (bps) over U.S. Treasuries on Tuesday, the tightest ever 
spread for an Indian issue.  urn:newsml:reuters.com:*:nL3N1NQ16S  urn:newsml:reuters.com:*:nL3N1NN186 
    Other companies are assessing if the narrowing in Indian 
bonds yields over U.S. Treasuries will last with a view to 
raising fresh funds, say bankers and corporate finance heads. 
    Markets have received the upgrade well, said Jujhar Singh, 
managing director and head of capital markets, South Asia at 
Standard Chartered Bank. 
    "This should give further confidence to Indian corporates to 
raise dollar funds through the international bond markets at the 
tightest ever spread in the last 10 years," he said. 
    Foreign investment in India's domestic corporate debt has 
reached its ceiling under central bank-mandated limits, forcing 
those investors who want exposure to India to buy offshore. This 
had helped tighten spreads even before the upgrade. 
    State Bank of India 2024 bonds  IN105910096=  have come in 
to 120 bps over U.S. Treasuries from 126 bps over just before 
the Moody's upgrade and 147 bps over in early 2017. 
    Seshagiri Rao, joint managing director of India's JSW Group, 
a steel-to-energy company, said the ratings upgrade could help 
JSW potentially save over $1 million annually on its borrowings. 
    Mahindra Group, which operates multiple businesses from 
autos to information technology, might tap offshore markets too, 
said finance head V.S. Parthasarathy, adding "a small one step 
upgrade by Moody's is a big step up for India's confidence." 
     
    ATTRACTIVE PRICING 
    Companies, including quasi-sovereign issuers that had 
already begun work on raising funds offshore, such as Indian 
Railways Finance Corp and Power Finance Corp, are now speeding 
up the process, bankers said. 
    State-controlled Hindustan Petroleum  HPCL.NS , might 
explore raising funds offshore next year, Chairman M.K. Surana 
said. 
    "Some institutional investors who are required to invest in 
investment-grade bonds might not have been willing to buy India 
dollar bonds in the past as the Baa3 credit rating did not give 
them psychological comfort margin in case of a downgrade," said 
Ken Hu, a senior investment officer at Invesco. 
    The prior Baa3 rating was the lowest investment-grade level. 
    Lower-rated issuers could also benefit with some bankers 
estimating their borrowing costs could fall as much as 15 basis 
points in offshore dollar markets. 
    Still, Moody's upgrade may not be enough to please all debt 
investors. 
    "India's a good credit to have on the books for foreign 
investors," said a senior investment banker, who declined to be 
named as he is not authorised to speak to media. "However, much 
bigger traction among investors will happen only if at least one 
more rating agency upgrades India." 
 
 (Reporting by Suvashree Choudhury and Krishna Merchant of IFR: 
Additional reporting by Nidhi Verma, Krishna Das and Neha 
Dasgupta in New Delhi, and Euan Rocha in Mumbai: writing by 
Suvashree Dey Choudhury; Editing by Neil Fullick) 
 ((suvashree.dchoudhury@thomsonreuters.com; +91-22-61807223; 
Reuters Messaging: 
suvashree.dchoudhury.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA RATINGS/COMPANIES