CFOs Start to Revive Global Bond Sales as Dollar Rates Fall: India Credit

Rural Electrification Corp. and Union Bank of India are reviving bond sales to international investors, after the market shut in December, as Indian dollar- denominated bond yields fall from a five-month high.

Rural Electrification in New Delhi may sell $500 million of bonds on Jan. 18, Finance Director Hari Das Khunteta said in a Dec. 29 interview. Union Bank is seeking as much as 200 million Swiss francs ($208 million) and European fund managers plan to buy as soon as they get their New Year allocations of cash, General Manager V.K. Khanna said in an interview on Jan. 4.

Indian companies more than tripled sales of foreign- currency bonds to $8.7 billion in 2010 as the central bank drove up rupee borrowing costs with six interest-rate increases to cool inflation. Average Indian dollar bond yields dropped to 5.10 percent from 5.22 percent last month, HSBC Holdings Plc indexes show. That compares with five-year funding costs in rupees for top-rated borrowers of 8.92 percent, according to Fixed Income Money Market and Derivatives Association of India or FIMMDA.

“The macro environment and risk appetite has improved from December,” Pierre Faddoul, a credit analyst in Singapore at Aberdeen Asset Management Ltd., which manages about $282 billion globally, said in a Jan. 6 interview. “The finding of a solution to the European sovereign crisis helped the overall sentiment.”

‘Choppy’

Indian borrowers stayed out of the market for global debt sales in December as U.S. Treasury yields climbed to the highest in more than four months after President Barack Obama’s extended tax cuts due to expire and as the European debt crisis worsened.

“Markets were choppy,” said Union Bank’s Khanna. Officials from the Mumbai-based state-owned bank met investors in Zurich, Geneva, Lausanne and Vaduz, Liechtenstein, between Nov. 18 and 20. Markets in Switzerland are stable and there’s still appetite for emerging-market bonds, Khanna said.

Reports showing an improving U.S. economy and bailouts of Greece and Ireland last year helped soothe deficit concerns and revive appetite for higher-yielding emerging-market assets.

Rural Electrification hired Credit Agricole CIB, Royal Bank of Scotland Group Plc, and Standard Chartered Plc to help manage its sale. The nation’s largest lender, State Bank of India, raised 750 million euros ($973 million) in November selling 4.75 percent bonds maturing in 2015.

Need Funds

“I expect huge issuances from India, especially among banks,” said Peter Varga, who manages $220 million of emerging- market corporate debt in Vienna at Erste Sparinvest KAG. “They will also need to fund their growth in 2011 after an amazing growth in credit last year.”

He owns bonds sold by Vedanta Resources Plc, Reliance Industries Ltd. and State Bank of India. “If the spreads are attractive, I will consider investing” in Indian debt, he said, referring to yields relative to benchmarks.

Average spreads on Indian dollar bonds have narrowed to 322 basis points from 382 basis points, or 3.82 percentage points, on Nov. 5, HSBC data show.

Indian banks borrowed an average 923 billion rupees ($20.3 billion) a day from the Reserve Bank of India last quarter, the most since 2000, as they struggled to meet rising demand for loans. The overnight borrowing rate between local banks was 6.38 percent last week, up from 5.5 percent a week earlier.

Deposit Growth

Deposits grew 14.7 percent in the two weeks ended Dec. 17 from a year earlier, lagging behind a 23.7 percent increase in lending, according to central bank data.

India’s state-run banks need to raise more capital to sustain credit growth, Chakravarthy Rangarajan, the prime minister’s chief economic adviser, said in New Delhi on Jan. 7.

The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, fell six basis points this month to 154 basis points on Jan. 6, according to CMA credit-default swaps prices.

Credit swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. The contracts rise when creditworthiness deteriorates and fall when it improves.

Issuance may revive across Asia, according to Aberdeen.

“A few Chinese companies and other Asian companies that did not go through with their issuance plans are now coming back,” Faddoul said. “January is when activity picks up and you have more people present to drive appetite.”

Yields Fall

The rate on emerging-market sovereign debt was 5.82 percent on Jan. 6, down from a five-month high of 5.99 on Dec. 16, according to an index compiled by JPMorgan Chase & Co. The spread to U.S. Treasuries narrowed to 229 basis points from 248 at the end of last year.

Elsewhere in Indian markets, the rupee had a weekly drop as investors bought dollars on rising confidence in the U.S. economy. The rupee declined 1.5 percent to 45.3850 per dollar, according to data compiled by Bloomberg.

Indian government bonds fell last week, pushing yields to the highest level in a month, on speculation the central bank will resume raising rates this month to slow food-price inflation.

“There are still three more weeks before the monetary policy action and the Reserve Bank of India should watch the behavior of the prices,” Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in an interview on Jan. 7 in Gurgaon, near New Delhi. “If prices continue to remain sticky, then probably some action will be required.”

The yield on the benchmark 7.80 percent bond due in May 2020 rose seven basis points to 8.2 percent on Jan. 7, according to the central bank’s trading system.

Food prices surged 18.32 percent in the week ended Dec. 25 from a year earlier, the most since July, according to a commerce ministry statement. The central bank is set to review monetary policy on Jan. 25.