India’s capital markets are super-busy and optimism is sky-high. Indian borrowers have accounted for almost a third of Asian syndicated loan activity year-to-date, and three of the top five Asia-wide loan arrangers are Indian banks. Rupee syndicated loans have raised US$56bn, as borrowers turn increasingly to the local market.
Even though domestic syndications typically cost 50bp–100bp more than hard currency facilities, a lot of borrowers that had accessed the offshore market still feel traumatised by the rapid withdrawal of international money at the start of the financial crisis that left them high and dry. They now prefer the safety of a home market that better understands their needs and is more stable during periods of risk aversion. That’s worth paying for.
Keith Mullin, IFR Editor-at-large
As for the optimism, the government doubled its infrastructure spending target to US$1trn in the 12th five-year plan, and no one even flinched. That’s impressive. Local bankers have no concerns about the ability to get projects funded; their concerns are much more on the operational side, on the reams of bureaucracy projects still have to go through to get approval.
The economy is growing at above 8% and could easily see 9%–10% in the near term. Capital to finance that growth would appear to pose few problems. At the macro level, the principal concern is getting inflation down. The country’s monetary authorities have shown they are prepared – to a point – to risk growth to get it down.
How US, Japanese and European observers must be wishing they had such a problem. Contrast India’s issues with deflation and double-dip fears and the fixation on modes of quantitative easing and monetary transmission mechanisms. India certainly invokes an alternative reality.
Mispriced?
So back to Coal India. The massively oversubscribed deal popped almost 40% on its first-day trading as institutional buyers, hugely cut back in allocations, frantically sought to build a position in the stock. But is that such a good thing? Arguably not.
The government wants to push through a bunch more privatisation offerings this year so didn’t want to play hardball on price. But when you see US$52bn of orders come into a book, you’ve got to wonder if underwriters misread the depth of investor interest in the story and simply mispriced the deal.
Even accounting for order inflation, squeezing a bit more on valuation wouldn’t have undermined the deal and would have resulted in more cash for the government. Given that proceeds of the disinvestment programme have been earmarked to cut the fiscal deficit-to-GDP ratio, the imperative to maximise proceeds might have suggested a more aggressive approach to pricing.
Let’s face it, the company is basically a monopoly so is hardly going to succumb to competitive pressures in any meaningful way, so the risk to investors is somewhat tempered. And given the government’s restrictive and control-oriented FII, inward investment and takeover regimes, that’s not going to change soon.
The FII framework is the subject of much debate. Foreign investment inflows could exceed US$40bn this year, and there is a lot more vying to get in. So rather than have foreign money flood into cheap stock market offerings and into short-dated prime-name debt, Indian monetary and regulatory authorities have a rare opportunity to leverage that international interest to accelerate growth in some of the under-developed segments of the country’s capital markets. India’s capital markets certainly have some gaps.
RBI and SEBI need to adopt a more pragmatic approach to get capital flowing into areas like long-dated and speculative-grade debt and into long-term growth capital. India also needs to attract the kinds of investors who will invest in project equity by making internal rates of return more compelling.
India still needs foreign capital to plug its savings/investment gap; directing it into areas that aren’t currently patronised by local money could be an interesting proposition.
Next up in the disinvestment stakes: Power Grid, the country’s largest electricity transmission company. Let’s hope the price is right.