Dollar bonds a hit, companies suit up for an encore on Debt Street

Mumbai: Inclusion of Indian sovereign bonds in a global index has also stoked demand for dollar-denominated debt of local conglomerates such as Vedanta and the Piramals, with the unexpected, outsized reduction in US policy rates last month accelerating the hunt by bulge-bracket funds for high-yield, emerging-market bonds.

Vedanta Resources (VRL) is considering tapping its recently issued dollar bond of $900 million to raise another $400 million to $500 million, sources say. Piramal Finance last week raised an additional $150 million from its $300-million bond. Muthoot Finance also tapped into its earlier $650-million bond, although that issuance predated the start to US rate easing cycle.

"Global investors across asset classes are increasingly interested in Indian credit with the inclusion of Indian Government Bonds in global indices," said Deepak Sood, partner and head-Fixed Income, Alpha Alternatives. "We are seeing heightened interest not only in Indian sovereign debt but also in corporate credit-both in USD and local currency. Strong macros, lower leverage, and corporate resilience are driving fund managers to increase their exposure to Indian assets."


In the high-yield corporate debt segment, the London-based VRL is looking to raise funds soon, said a bond investor.

Limited Supply of High-yielding Paper
"VRL is looking to tap into the bond raised last month, which, if it decides to raise, will be priced tightly at around 10.25%," a bond investor said.

A Vedanta spokesperson declined to comment.

Last month, VRL raised a $900 million five-year bond through a subsidiary at 10.875%. It had received good response by global investors drawing up to $1.45 billion in orderbook which saw an oversubscription of 1.6 times. Also, last week Biocon Biologics priced its inaugural USD Bond for $800 million with 5-year tenure at coupon of 6.67%, which is India's largest high-yield USD debut bond in the last ten years and first by any biopharmaceutical company in Asia Pacific.

Narrowing Spreads
The US Federal Reserve lowered interest rates by 50 basis points in September in the first easing in four years. With limited supply of high-yielding paper, spreads have since compressed significantly, a sign of the increasing demand for Indian debt.

The retreat in corporate yields dovetails into the broader pricing of sovereign debt.

Indian government bonds began featuring in the JPMorgan GBI-EM Global Series of indices late June, with the inclusion promising flows of up to $30 billion over the next year. These bonds have been lapped up by overseas investors even in the run-up to their eventual index inclusion.

"Investors are looking to buy Indian dollar debt as supply has dwindled in recent years, creating a sharp demand-supply imbalance," said a source. "The market has seen limited new issuances, particularly in the high-yield space, leaving investors with fewer options and pushing up demand for Indian corporate bonds."

Non-bank financial companies (NBFCs) are also expected to raise more funds overseas, driven by a tight credit situation domestically. Dollar bonds help NBFCs tide over the increasing credit pressure at home. "NBFCs are looking to diversify their funding sources, as domestic credit markets face tighter liquidity, especially for those relying on bank loans," said Sood of Alpha Alternatives. "This dynamic is pushing more companies to explore the dollar bond market as a viable alternative for their funding needs."

Last week, Piramal Finance tapped its previous bond issuance, raising $150 million in an international bond market, which was oversubscribed 3.5 times with a final order book exceeding $520 million. The bond was issued at a yield of 7.078%. This overseas fundraise diversified Piramal Finance's borrowing profile.

Earlier in July, Muthoot Finance had tapped its May bond issue, raising an additional $100 million tapping into $650 million.

This fundraise involved tapping 7.125% bond due in 2028, with a final price guidance of 6.73%.