IFR Asia India debt capital markets Roundtable 2018: Changing with the climate

Lakshmi Iyer Kotak Asset Management Lakshmi Iyer is Chief Investment Officer (Debt) & Head of Products at Kotak Mahindra Asset Management, the manager of the Rs1.3trn (US$18bn) Kotak Mahindra Mutual Fund. She joined Kotak in 1999 as a fund manager responsible for credit research as well as deal execution, and has also been a portfolio specialist, managing product-related initiatives and product pricing and with the funds management and sales team. Before joining Kotak, Lakshmi was a research analyst tracking corporate bond at Credence Analytics. Rashmi Mohanty Vedanta Rashmi Mohanty is head of group treasury at Vedanta, the Indian mining and resources group, based in Mumbai. She is responsible for all aspects of financing and balance sheet management, including the group’s onshore and offshore bond issuance. Mohanty joined Vedanta in 2015 after holding senior treasury posts at Religare Enterprises and GE Capital Services, and has earlier worked at Deutsche Bank. She holds a post-graduate diploma in management from the Indian Institute of Management Bangalore and an Engineering Degree from Delhi University. Nipa Sheth Trust Group Nipa Sheth is the founding director of Trust Group, a financial advisory firm with a focus on fixed income. She established Trust in 2001 and developed the firm into a leading distribution house for debt products. More recently she has added investment banking services across origination, intermediation, advisory and fund management. She is based in Mumbai. Karthik Srinivasan ICRA Karthik Srinivasan is Senior vice president of ICRA, the Indian credit rating agency, and a member of the company’s rating committee. He joined ICRA more than 17 years ago and is responsible for financial sector ratings. Srinivasan is a CFA charter holder with a degree in electronics engineering and a Masters in Management Studies (Finance) from Mumbai University. Srinivasulu Yanamandra Barclays Srinvasulu Yanamandra is director, debt capital markets, at Barclays India. He runs the leveraged finance and high-yield debt capital markets business for the UK bank in India. Yanamandra has been with Barclays for 12 years, having started out in the FX and rates business, and has been part of the financing business for the last seven years. Sandeep Bhattacharya Climate Bonds Initiative Sandeep Bhattacharya is India project manager at the Climate Bonds Initiative, a non-governmental organisation devoted to promoting and standardising climate-aligned bond issuance. He is responsible for the CBI’s activities in India, including stakeholder engagement and communications. Bhattacharya joined CBI in 2017 and has previously worked in fixed income, securitisation and credit ratings at Deutsche Bank, Cagamas and Malaysian Rating Corp. Ashok Emani IDFC Alternatives Ashok Emani is head of ESG at IDFC Alternatives, a multi-asset class investment manager with over US$3.4bn under management and the first Indian investment manager to sign up to the UN Principles for Responsible Investment. Emani is a Chevening scholar and an IRCA approved Environment Management Systems lead auditor with over 21 years of consulting, research and assessment experience. He joined IDFC in 2002 and is responsible for assessing environment and social risks of the firm’s infrastructure investments in India. David rasquinha Export-Import Bank of India David Rasquinha is managing director and chief executive officer of the Export-Import Bank of India, the government’s official export credit agency. He joined India Exim in 1985 and was appointed to the board in 2014 as deputy managing director, before moving up in 2017. Rasquinha has extensive experience in the international capital markets, having earlier been responsible for India Exim’s treasury and risk management, among other positions. He was the bank’s resident representative in Washington, DC from 1999 to 2004 and has served on several working groups set up by the Reserve Bank of India. Avinash T

IFR ASIA: Welcome everyone. Our first panel is an opportunity to assess the outlook for the Indian debt markets. Karthik, perhaps we could start with you on the state of Indian fixed income today. What is the impact from the troubles in the banking sector? Karthik Srinivasan, ICRA: We need to first appreciate and acknowledge that India still remains a bank-driven economy. So, if the banking sector is not doing well, it’ll be really difficult for the other industries to do well. We need not reiterate the challenges the banks are facing, but from a bond market point of view, we need to acknowledge that banks have a sizeable portfolio of their investments in CPs and bonds. This year we’ve had some issues at the banks and rising interest rates, so in that context it’s not surprising that bond issuance volumes have been lower. There have been other structural changes and people have had operational issues. I think we’ll discuss those as the session goes on. Having spoken about the negatives, there are a couple of positives which have happened over the last couple of years. One of the biggest is the new bankruptcy law, the Insolvency and Bankruptcy Code. While it’s still early days, the hope is that once things stabilise, maybe in another year or so, the confidence level of investors will increase and that will help the market over the medium term. On the banking side, the regulator has been trying to clean up the sector. Under the IBC, the regulator has already forced banks to resolve two rounds of defaults through the NCLT [National Company Law Tribunal]. The timelines may be slightly delayed, but you would still expect a lot of bad debt to be resolved in this financial year. As these resolutions happen, there is definitely a possibility that the system would get to a position to look at credit or investments once again. The other big development is the February circular from the RBI. We still need to run through a couple of quarters of pain, but the positive from that circular is – indirectly – about disciplining the borrowers. IFR ASIA: The February circular, is that the one requiring disclosure of any late debt payment? Karthik Srinivasan, ICRA: That’s right. We’ve always had the mindset of treating borrowings from the debt capital market in one way and borrowings from banks in another. So the February circular – though not everyone will like it – from a structural point of view, is positive. It’s trying to build in the discipline, not only that lenders need to report it, so that at a broader country level one is more aware of the systemic risk, but also that borrowers can’t take one set of lenders for granted. So in the near term pains will continue, but I think structurally things are moving in the right direction. IFR ASIA: Srinivas, perhaps I can come to you. If the banks are constrained, does that mean that more borrowers are looking into the bond markets? What kinds of options are open to them? Srinivasulu Yanamandra, Barclays: Good morning everyone. It’s an interesting question, what options are there if banks are not lending? Clearly, the answer is the bond markets, but we aren’t really seeing bond issuance in any meaningful volume. I was telling someone this morning that there are 10-plus banks all at number one in the high-yield-bond league table, because there’s been only one issuance in the first half year! That tells a story in itself. Bonds haven’t been easy to do. So what is the ultimate solution? Right now bank liquidity is still available, especially in the dollar markets, for the stronger borrowers. Bank markets always lag bond markets. The bank markets were more expensive than bond markets for the whole of last year, but this year bonds have been more expensive, due to both global and domestic factors. So borrowers that can get liquidity in the loan market are going down that route. The syndicated loan markets have seen massive volumes this year. We’ve seen quite a few banks and a large conglomerate hit the m

IFR ASIA: We’ll move on now to a special session on green finance. Sandeep, what recent developments have you seen in Green finance, and what’s going on here in India? Sandeep Bhattacharya, CBI: In India the capital markets have been blessed by some recent INR bonds that refinanced green projects, mostly from renewable energy developers. When this trend started in 2015, the underwriters used to say that partially guaranteed instruments were very difficult to sell down. I am happy to say that they were singing a different tune on the one that got placed in January! We have had a fair amount of issuances from large public sector borrowers, and the pioneer was EXIM Bank, of course. Then we had IREDA, NTPC and IRFC [Indian Railway Finance Corporation] who then followed suit and did offshore issuances. Some of them were Masala, some of them were US dollars. EXIM Bank started off with mass transportation, but the asset mix is heavily weighted towards renewable energy with a little bit of Green buildings and a little bit of mass transportation with the IRFC deal. If you go beyond the capital markets, there is increasing acceptance of financing of equipment, like solar recharging systems. There are plenty of relatively small finance companies doing risk business there, and I must say that the size of the equipment is getting larger and larger. What started off with mobile phone chargers is going up to maybe a whole housing system and these non-banking financial corporations are keeping pace. Of course their balance sheet sizes are still small. They still need to scale up a bit. There is intense demand for rooftop solar systems but practically no financing. So what the smaller operators are doing is setting up equipment and selling it to the big developers, and in the process strengthening their competition. There is a huge dearth of financing there – it comes from crowdsourcing, maybe some wealth management firms. In fact Barclays wealth management has done a good job of financing the equity of some of these SPVs which do rooftop solar. There are a plethora of business models and I must say it is difficult for financial institutions to keep pace with the different models. There’s a tremendous demand but a huge financial crunch. This is the Indian scenario. It’s very different from what you’re seeing in Europe. Investors are all over the clean stuff. The next step there is looking at Green bonds from the ‘dirty’ industries, which means the refineries, the metal extraction companies that are transitioning to a business model which aligns with the Paris Agreement. There’s a fair amount of capital available, and a lot of Indian companies have tapped it, but in India we are still dealing with a lot of basic needs for water, for agriculture. They are at a very start-up stage and a bit far away from the capital markets. IFR ASIA: David, I think this is a good one to bring you in on. Can you tell us a little bit about EXIM’s experience in the green market and what you take away from that? David Rasquinha, India Exim: We have a couple of takeaways, and the first one is probably going to be music to Sandeep’s ears and that is I would say get a good certification. I’m not entirely happy with the advice we received when we did India’s first cross-border Green bond. We did not get a certification done. Call it a bit of, not exactly arrogance, maybe a bit of overconfidence; we thought our word was good enough. We didn’t know the market. Frankly, it was the first Green bond out of India, we were getting our feet wet in the market and we went ahead with full disclosure. We disclosed the mass transportation projects that we wanted to fund, as Sandeep mentioned. These are cross-border in Bangladesh and Sri Lanka. We explained why they could be perceived as green, because of the shift from high-intensity road transport to lower-intensity mass transport. We gave all the details but it was essentially our word. We also offered an audit certification regar