Indian M&A propels bond boom
A handful of big-ticket domestic M&A deals in India are set to add to a wave of issuance of rupee-denominated bonds, with financings totalling up to Rs315bn (US$3.68bn) expected to hit the market in the coming weeks.
JSW Paints and Torrent Pharmaceuticals are among the companies expected to raise non-convertible debentures, taking advantage of the cheaper cost of funding in the domestic debt market to finance their onshore acquisitions, while Manipal Hospitals is considering both an NCD and an offshore loan.
Torrent Pharma plans to raise up to Rs200bn through NCDs of tenors ranging from two to 10 years to buy a controlling stake in India-listed JB Chemicals & Pharmaceuticals in what will be the largest M&A bond from India.
JSW Paints is in talks with banks and investors to raise debt of up to Rs65bn for its acquisition of Akzo Nobel India, while Manipal Hospitals is likely to borrow Rs40bn–Rs50bn for its purchase of a controlling stake in Sahyadri Hospitals Group.
“This year we will see record M&A deals being funded through rupee bonds if some of the large acquisition finance deals in the pipeline get successfully funded through NCDs as planned,” said Manisha Shroff, partner for banking, finance, and debt capital markets at law firm Khaitan & Co.
Domestic M&A volume of US$47.7bn in the first half of the year in India was already the highest for the corresponding periods since 2022 and, at US$48.5bn year to date, has already eclipsed the US$44.3bn transacted in all of 2024, according to LSEG data.
Meanwhile, domestic bond volume totalled Rs6.45trn in the first six months of 2025, according to Prime Database, on track to overtake 2024's full-year record issuance of Rs10.90trn.
The rupee market has already powered multiple M&A deals with the successful placement of bonds estimated at Rs179.5bn in total for Mankind Pharma, Hinduja Group and Jubilant Bhartia Group for their acquisitions of Bharat Serums and Vaccines, Reliance Capital and a 40% stake in Hindustan Coca-Cola Holdings, the parent of Hindustan Coca-Cola Beverages, respectively in the past year, according to IFR data.
According to Khaitan & Co's Shroff, “given the sizes [of the M&A transactions], the deals hitting the bond market are going to be larger than Mankind Pharma and even Jubilant.”
In India, domestic banks are not permitted to finance the acquisition of equity shares, so financing generally comes from non-banking financial companies or bond issues. For an inbound acquisition by an offshore acquirer, international banks, financial institutions and offshore debt funds are permitted to participate under the Reserve Bank of India’s external commercial borrowing rules.
In the latest instances involving Torrent Pharma and JSW Paints, the deals are for domestic acquirers and hence NCDs provide the best financing option. On the other hand, the acquisition of Sahyadri involves foreign-owned or controlled companies – Singapore's Temasek Holdings owns a majority stake in Manipal Hospitals, which is buying the majority stake from Ontario Teachers’ Pension Plan – so debt financing could come via NCDs or an offshore loan. Only foreign portfolio investors will be allowed to buy the NCDs because of Indian rules relating to foreign-owned or controlled companies.
Cheaper NCDs
NCDs appear to hold the advantage as borrowing costs are cheaper than offshore loans, since the RBI has cut its repo rate thrice this year to 5.5% – the lowest in three years – whereas the US Federal Reserve has not cut rates so far this year.
“In India, the bond market rates continue to be most attractive for issuers compared to ECB loans, rupee loans and foreign currency bonds,” said Venkatakrishnan Srinivasan, founder at financial advisory firm Rockfort Fincap.
“The local currency market is extremely buoyant and there is a huge difference in the local currency pricing compared to US dollar funding after taking into account currency swap costs, so most borrowers will look inward rather than outward,” said a Singapore-based banker.
While Torrent Pharma is eyeing varying tenors, the other acquirers are likely to target the three-year tenor for NCDs, which is the sweet spot for mutual funds that buy a significant portion of domestic bonds in India and are chasing higher yields.
“Mutual funds continue to receive a lot of inflows in their debt funds,” said Killol Pandya, head of fixed income at JM Financial Asset Management. “They will participate as anchor investors in such deals, as the pricing is expected to be at attractive levels, a spread of 100bp to 200bp over AAA state-owned companies and nonbanking financial companies, depending on the rating.”
Torrent Pharma’s large debt size is eye-catching, but given the company’s domestic rating it can tap into different pools of liquidity onshore.
“Torrent Pharma is AA+ rated so the issue size can be large in the domestic market and can be absorbed at a price point which also does not get influenced by any withholding tax considerations,” said a banker in Mumbai.
Bankers said JSW Paints could follow the template for Jubilant Bhartiya, which borrowed debt at holding and operating company levels to fund its acquisition of the 40% stake in Coca-Cola’s bottling partner in the country.
In late May, Jubilant Bhartiya raised Rs56.5bn from bonds that was well received.
Jubilant Bevco attracted subscription of Rs47.7bn for a Rs30bn 9.15% tranche due May 31 2028 at a yield of 8.79%, while Jubilant Beverages drew subscription of Rs58.4bn for a Rs26.5bn 9% note due May 31 2028 at an 8.65% yield.
The RBI’s withdrawal of short-term investment and concentration restrictions for FPIs to invest in corporate debt securities in early May is also helping domestic bond issuance and M&A financings.
Under the earlier rules, FPIs were not allowed to have more than 30% of their corporate bond investments in debt securities with less than one-year residual maturity and had to adhere to a concentration limit of 10% to 15% for investments in long-term corporate bonds.
Under the relaxed rules, FPIs can invest in any amount of short-term corporate bonds and take larger exposure in fewer issues, as long as it is within the overall FPI limit set by the market regulator.
“There will be ample demand from onshore and offshore investors as recent Jubilant and Mankind Pharma trade have set [the] yardstick for FPI investors as precedents for acquisition related covenant packages,” said Shroff.