How slower Fed rate hikes are helping Indian banks raise money overseas

MUMBAI: At least five Indian banks, including the State Bank of India, have lined up to $3 billion overseas bond sale in the next two months as they look to shore up resources when interest rates have come off on hopes the pace of interest rate increases by the Federal Reserve will be slower, three people familiar with the plans said.

The fund raising if materialises will be the highest by Indian financial institutions in four years and is set to surpass the 2014 record raising of 5.62 billion.

State Bank of India, ICICI Bank, Axis Bank, Bank of Baroda, and Canara Bank are the ones that have lined up the bond issuances as these are the ones with relatively sound financials among the Indian banking system which is reeling under record stressed loans.

“The dollar bond spreads have fallen significantly in the secondary market, said Shashikant Rathi, head of treasuries and markets, Axis Bank "This makes sense for Indian borrowers to the tap overseas market as they can borrow cheap money. We may see a number of such bond sales within months as Indian borrowers would need money to support their businesses amid an improving economy." Rathi declined to comment on individual bond-sales.


Four of the above mentioned banks did not respond to e-mails sent on their plans. ICICI Bank said, "Your information on ICICI Bank issuing dollar denominated bonds is not true."

While State Bank of India is looking to raise between $500 million to 1 billion Axis Bank may settle for $500 million, said those people who did not want to be identified. Canara Bank, Bank of Baroda and ICICI Bank, the largest private sector lenders, are planning to raise $250-500 million apiece.

Indian companies raised around $6 billion in dollar-denominated bonds to through 15 deals this year compared with nearly $7 billion in 2016 through 24 deals, data from Dealogic shows.

Top Indian banks frequently sell bonds in international markets to either shore up their capital, or to lend to Indian firms that have international operations. It mostly happens when interest rates in international markets are benign.

The secondary market spread between Indian investment grade bonds and the benchmark US treasury has shrunk by 120 to 140 basis points, compared with 170-180 basis points last September. A basis point is 0.01 percentage point. Lower the spread, lower the cost.

“Overall borrowing costs have shrunk across the board, including for investment grade issuers,” said Amit Bordia, head of corporate finance-India, Deutsche Bank. “It is an opportunity for Indian issuers to tap the global pool of funds, and domestic banks are no exception. For many of them, there is a potential to issue bonds at nearly all time-tight spreads.”

These banks are yet to appoint arrangers.

In January SBI sold such bonds for half a billion dollars with five-year maturity at 3.30% while ICICI Bank raised $300 in March with nearly similar terms.

“With a robust bond markets for Indian Issuers, the market is currently very receptive of issuances out of India,” said Ashwini Kapila, MD, Head of Financial Institutions Coverage at Barclays. “We do expect Indian banks to access the international bond markets post their annual results, especially given the limited issuance from this space this year.’’

Both Bordia and Kapila declined to comment on specific deals.