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Hopes of a stable govt improve demand for Indian overseas bonds

LiveMint logoLiveMint 13-05-2014 Joel Rebello

Mumbai: Yields on foreign currency bonds sold by Indian companies have dropped to a six-month low as demand for Indian debt increases on expectations that a change in government this month will lead to an improvement in the economy.

Investors’ desire to diversify their portfolios away from bonds originating from markets like China has also led to increased appetite for India corporate debt, bankers said.

The yield on 10-year bonds sold by power producer NTPC Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Indian Oil Corp. Ltd (IOC) is at six-month lows. So is the yield on five-year bonds sold by Jaiprakash Associates Ltd and Sintex Industries Ltd. A lower yield reflects higher demand.

The yield on NTPC bonds is down to 4.9% from its November high of 6.23%, while that on BPCL’s has dropped to 4.88% from 6.14%. The yield on IOC’s debt has fallen to 4.46% from 5.14% in November.

Yield on bonds of private-sector companies have seen a steeper fall. The yield on Jaiprakash Associates’ and Sintex’s bonds has fallen to 7.89% and 8.49%, respectively, from 11.54% and 11.80% in November.

Investors have started believing in the India story as the local currency stabilized from its August lows and negative sentiment around the Indian political and macroeconomic scenario receded, said Ashwini Kapila, managing director and head of financial institutions group, India, at Barclays Plc.

“Now with more confidence and stability on this view, including the prediction of a stable government by the exit polls, investors are seeing value in buying into India—impact of which is visible on the currency, equity and credit markets,” Kapila said.

Bharti Airtel Ltd, which raised $1 billion by selling 10-year bonds through its Netherlands subsidiary late on Monday, has already seen the yield falling overnight to 5.12% from 5.35%.

State Bank of India, which raised $500 million by selling 10-year bonds in April at 4.87% coupon, saw the yield drop to 4.85% on Tuesday from 5% on Monday.

Global hedge funds’ assets under management are at a lifetime high, an indication of the liquidity available for investment in assets such as Indian corporate bonds, said Jayesh Mehta, managing director and country treasurer, global markets group, India, at Bank of America-Merrill Lynch.

Beside investors from the US and Europe, an increasing number of investors from the Middle East who are comfortable with India and want to diversify their investments are investing in Indian debt, said a senior executive at a London-based bank. They include the likes of Abu Dhabi-based First Gulf Bank and the Qatar Investment Authority, said the banker on condition of anonymity.

So far this year, 14 Indian companies, including Bharti Airtel have raised more than $8 billion through the sale of overseas bonds in different currencies. In 2013, Indian companies raised more than $14 billion from overseas bond markets.

“For the first time since the financial crisis, bond yields are comparable to overseas loans, which means many Indian companies will look at this as an alternative route to raise money,” said Ganeshan Murugaiyan, managing director and head of investment banking, India, at BNP Paribas SA.

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