New Delhi: Indian companies are borrowing a record amount of euros as Prime Minister Narendra Modi's economic plan boosts offshore demand for the nation's assets at a time when European interest rates are at an all-time low.
Firms including Reliance Industries, Bharti Airtel and ONGC Videsh took in 5.57 billion euros ($7.5 billion) from bond sales and loans so far in 2014, up from 1.9 billion euros in the whole of 2013, according to data compiled by Bloomberg. The average funding cost in the single currency for emerging-market borrowers slid 63 basis points this year to 2.41 per cent, according to JPMorgan Chase data.
Euro debt is gaining appeal among Indian businesses as they boost overseas fund-raising to cut costs, after European Central Bank President Mario Draghi unveiled unprecedented monetary easing last month to prevent deflation. Modi's landslide election victory in May has buoyed optimism he will deliver on a pledge to revive Asia's third-largest economy, boosting demand for Indian debt, according to FIM Asset Management.
"Europeans possibly have a better outlook since the election and that is why Indian offerings have got a strong response, be it Bharti or ONGC Videsh," Taina Erajuuri, who helps manage the equivalent of about $1 billion in emerging-market assets at FIM Asset Management in Helsinki, said in a telephone interview on July 23.
"The lower coupons are indicating Indian bonds are meeting rising demand among Europeans for good assets."
In its first budget unveiled on July 10, Modi's administration announced plans to narrow the fiscal deficit to a seven-year low, accelerate infrastructure development and allow more foreign investment in industries. The economy is set to expand as much as 5.9 per cent in the year through March 2015, the finance ministry estimates, after the previous period's 4.7 per cent growth that was near the slowest in a decade.
Optimism over the new government's policies, combined with the Reserve Bank of India's (RBI) success in reining in inflation and stabilising the rupee, is attracting record capital inflows into local markets. Global investors have pumped $25.5 billion into the nation's stocks and onshore bonds in 2014. The rupee has rebounded almost 15 per cent from a record low of 68.845 per dollar reached in August 2013, the world's biggest currency gain in the period, according to data compiled by Bloomberg.
"The government's actions are helping sustain the positive sentiment that was initiated in the run-up to the elections," Walter Rossini, who oversees about $200 million of Indian assets at Aletti Gestielle SGR in Milan, said in a July 23 telephone interview. "India is still attractive among its peers and I don't think that will change in the short term."
ONGC Videsh, a unit of the nation's biggest energy explorer, sold seven-year euro-denominated notes this month at 2.75 per cent, according to data compiled by Bloomberg. Bharti Airtel, India's largest mobile-phone carrier, sold similar-maturity debt at 3.375 per cent in May. It issued 10-year dollar-denominated securities at 5.125 percent in March 2013 in its debut international offering.
Last month, the ECB's Draghi and his fellow policy makers cut the benchmark refinancing rate to a record 0.15 per cent and became the first major central bankers to charge fees on deposits. In India, the RBI's repurchase rate is at eight per cent after 75 basis points, or 0.75 percentage point, of increases between September and January.
Ten-year government bonds in India yield 8.50 per cent, compared with 1.12 per cent in Germany and 2.46 per cent in the US, according to data compiled by Bloomberg.
"Euro borrowing costs at historic lows have opened up an attractive avenue of fundraising for Indian companies," Olivier De Timmerman, a money manager at KBC Asset Management in Luxembourg who oversees $640 million in emerging-market bonds, said by e-mail on July 28.
"This, combined with global investors' confidence in India's new government, is likely to increase euro debt issuances," he further added.
Tata Steel has hired banks to raise the equivalent of $5.6 billion to refinance debt used in its 2007 acquisition of the UK'sCorus Group, a person familiar with the programme said last week. The multi-currency loan sought by India's top producer of the alloy includes two seven-year facilities of 1.8 billion euros and $1.5 billion, a 700 million-pound ($1.2 billion) six-year revolving credit facility and a 370 million- euro five-year term loan, the person said.
The market for Indian companies' global bonds is set to almost triple to $160 billion by 2018 as economic growth rebounds, Morgan Stanley says. The expected surge in outstanding foreign-currency debt, now $61 billion, would take the nation's share of the market to the biggest after China's among Asian nations excluding Japan, the owner of the world's largest brokerage estimated in a July 22 report.