Using Thomson Reuters proprietary data, we looked at all borrowing in the database by entities whose ultimate parent company was Indian and which had raised finance between January 2014 and June 2015 in the domestic and offshore bond and syndicated loan markets. The results, which were gathered during the third and early fourth quarters of 2015, were illuminating.
Broadly speaking around 200 borrowers tapped the loan market and slightly more (225) accessed the bond market, with some (relatively limited) crossover. Total borrowing in dollar-equivalent terms across all markets was close to US$180bn. Not surprisingly, the bond market saw a lot more serial issuance than the loan market, particularly in the rupee sector. The local market offered good funding to India’s Triple A statist corporates as well as to borrowers in the housing finance, real estate, power and infrastructure sectors.
India’s large industrial groups borrowed through a veritable forest of group subsidiaries and offshoots, while there was also a number of one-off special purpose entities (some regional state-linked) tapping the market for specific purposes, mainly for project and infrastructure finance. All-in-all, we estimated the true universe of entities to be around (but probably fewer than) 200 companies, with many of those with modest funding requirements coming to the market just one or two times in our sample period.
With a healthy 20% response rate to the confidential survey, questions focused on borrowers’ intentions in terms of transferring between loan and bond markets and between offshore and onshore markets & on willingness to diversify sources of funding, and on key areas of concern.
The Singapore roundtable event presented a summary of the survey findings followed by a spirited discussion with a panel of experts from the sell-side, buy-side, and issuer and ratings sectors. With the US Federal Reserve having tightened in December and the Reserve Bank of India having loosened monetary policy with a 50bp rate cut in September, the scene was set for some interesting dynamics in the capital and bank markets.
The broad consensus from the conversation was that the domestic market would need to do a lot of the heavy lifting. But even when the domestic growth and capex cycle kicks in and sluggish credit demand picks up, there will be sufficient rupee liquidity in the local market (given growth in deposits above advances) to take up the slack. This is particularly true, given the preparedness of some borrowers to refinance bank facilities or raise capital for new projects in the bond market, and the parallel preparedness of the banks to extend credit in a rate down cycle that will hold out the prospects of better spread levels.
At the time of the discussion, Masala bonds had been front-of-mind globally as a potentially exciting theme for 2016. But IFR’s Singapore panel very expertly threw out a lot of caution around this market and espoused a broadly unenthusiastic view, which turned out to be spot on.
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