IFR’s most recent India Offshore Financing roundtable took place in Mumbai in late November 2015. It was well timed, in as far as it caught the market betwixt and between a series of capital markets, political and regulatory events that at one and the same time were creating a mixture of uncertainty and anxious expectation.
Our expert panellists did a fabulous job of cutting through to the essence of the issues and we had a spirited discussion. Economic growth and the need for capital markets to fund corporate expenditure ran through the conversation. In short capital markets volumes looked at in isolation mean little if they’re not viewed through the lens of capital need and growth funding.
There was broad agreement that YTD 2015 capital markets outcomes had reflected reduced need for capital more than anything else. On the plus side, there was also broad agreement that the turning of the capex cycle is a matter for 2016 and that once it is set, issuers will be calling more fulsomely on investors and financiers to supply them with the cash they need to fund growth.
The structure of Indian equity capital markets activity in 2015 is a reflection of that. As the cycle turns, ECM will be used more to boost capacity utilisation rather than for balance sheet repair, financial engineering, or stake peddling.
At the political level, the Goods and Services Tax, and Land Reform bills are seen key pieces of reform legislation that will ultimately boost growth, notwithstanding the fact that the party-political wrangling that has accompanied both has retarded rapid progress.
Running through the growth and capital debate was the loosening of the External Commercial Borrowing regime. The steps being taken by the very hands-on Indian monetary and regulatory machine to offer Indian corporates the latitude to review a broader range of funding options to suit requirements has been well received by the market and the wider ecosystem.
Prospects for the Masala Bond market formed a large component of the conversation and IFR’s panellists should be commended for not being taken in by the tremendous media hype around this market and remaining firmly rooted in realms of capital markets Realpolitik.
While being excited by the prospects that a global offshore rupee bond market might extend to India corporates, panellists were very much of the opinion that it was by no means a certainty that issuers and investors would be easily accommodated on price, bearing in mind the low cost of onshore funds that India’s borrowing glitterati could achieve and the need for international investors to be compensated not just for credit risk but for illiquidity risk and currency hedging costs as well.
In the event, no accommodation has been found to-date given investors spread premium demands. The days of India’s second-tier corporates tapping offshore high-yield names look some way off. But the market nonetheless remains very much in the capital markets playbook, while at a wider level prospects for capital markets in 2016 in India remain rosy.
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