(Aug 17): Indian financial institutions have sold a record amount of dollar bonds so far this year, as lenders rush to capitalise on a central bank facility that lowers hedging costs on overseas borrowings.
The offerings reached US$8 billion (RM32.54 billion) on Thursday, breaching the previous record of US$7.92 billion hit in 2019, according to data compiled by Bloomberg. At least four issuers, including the State Bank of India, ICICI Bank Ltd and Axis Bank Ltd, tapped the market in August, marking the busiest-ever month for such borrowings.
The issuance has gathered pace since the Reserve Bank of India in early June announced the concessional foreign-exchange swap facility for banks and state-run firms to shore up a weakening rupee, boosting domestic liquidity and supporting credit growth. The special borrowing window is open until Dec 31, prompting more lenders to accelerate their offerings.
The central bank in June had also announced a special window to attract foreign-currency deposits. It surprised traders on Friday by closing that facility a month ahead of schedule, leading to a selloff in shorter-tenor India bonds, as the premature closure means less rupee liquidity to support demand. There is no change in the deadline for the overseas borrowing facility for now.
“The recent surge in dollar bond issuance by Indian banks has primarily been to extend leverage to attract deposits from the nation’s overseas residents,” said Nicholas Yap, head of Asia credit desk analysts at Nomura Holdings Inc.
He expects lenders to rush to the dollar bond market over the next few weeks as RBI closes the deposit swap window early. “Post this near-term surge, issuance will likely taper off, as the aforementioned impetus will no longer be there and still elevated hedging costs make it uneconomical for banks to issue offshore,” Yap said.
About two-thirds of the dollar borrowings by Indian firms this year have come from financial institutions, highlighting lenders are responding to the central bank’s efforts to boost capital inflows, after a tepid market earlier in the year due to high hedging costs. The facility offers a fixed annual rate of 1.5% for an average maturity of at least three years, lower than current market costs.
The pipeline is set to grow further. Kotak Mahindra Bank Ltd and Yes Bank Ltd have mandated advisers for potential benchmark-sized dollar bond offerings.
The surge has spanned both private- and public-sector banks, according to Citigroup Inc. Strong global order books have allowed recent deals to price tighter than initial guidance, underscoring international investor appetite for exposure to Indian financial-sector credit, the US bank said.
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