India Inc likely to raise $2bn via pvt placements in US

MUMBAI: Indian companies intend to raise up to $2bn from the US private placement market over the next six months. These corporates can draw benefits from the wider depth of the US market, the larger pool of resources and lower spreads, said Stephen T Monahan, MD and global head of private placements, Banc of America Securities.

The total size of the US private placement market is around $40bn and only half of the issuers are US companies. Issuers include corporates from Europe, Australia and New Zealand.

Recently, Reliance Industries raised $300m from this market through the issuance of 10-12 year senior, unsecured notes which were bought by US insurers. India and China find favour among investors because of their growth story and strong economies, Mr Monahan pointed out. Banc of America Securities is currently in talks with 12 local

companies which are considering raising funds through the US private placement route. These are companies from sectors such as energy, power, transportation, construction and other capital-intensive sectors and include four state-owned entities. Credit spreads are at historically tight levels as the issuance of a two-year bond involves a higher pricing than the 10-year government paper.

Commenting on the local space, Mr Monahan said that the local market lacks depth and is too secured, which hinders the amount of unsecured debt that could be raised in offshore markets and also restricts broad-based capital formation. When funds are raised through the unsecured route, investors consider the cash flow of the company and not the asset base.

Although Moody’s has rated India investment grade, the rating profile of Indian corporates is constrained by the lower-than-investment rating assigned by S&P. This is because in case of dual ratings, investors look at the lower of the two.

To tide over this issue, companies having dual ratings are looking at procuring ratings from a third credit rating agency such as Canada-based Dominion Bond Rating Service (DBRS) or Fitch Ratings. If a company has been rated by three agencies, of which two assign it an investment grade, then it works to the favour of the company.

Corporates have been increasingly raising money through the ECB route for the past couple of years. They had raised $17.13bn from overseas markets in ’05-06 as against $13bn in ’04-05 through ECBs and FCCBs. In the first quarter of this financial year they have raised $4.3bn as against $2.3bn in the previous year.