"It will affect the international lending rates for India andthe cost of borrowing from abroad would get rise... Theinternational funding for external commercial borrowings andforeign currency convertible bonds will also be affected,"said Abhishek Goenka, founder and chief executive of India ForexAdvisors. The rush is already visible, with Indian companies raising close toRs 6,000 crore after the Reserve Bank of India (RBI) cut the reporate by 50 basis points last week. For instance, aluminum maker Hindalco Industries has raised Rs3,000 crore by selling secured non-convertible debentures. |
The10-year paper carries a coupon rate of 9.55 per cent. The issue,the largest by an Indian manufacturing company in recent years, wasmanaged jointly by HDFC Bank and Standard Chartered Bank. "The deceleration of the Indian economy will bring down theinterest rates. Hence, the rally in bond markets is inevitable.Hindalco's issue has set a new benchmark in pricing and many morecompanies are interested in raising funds from the local bondmarket," Rakesh Singh, head of investment banking at HDFCBank, told Business Standard.
Tata Steel also raised Rs 1,500 crore through a similar issue. Thebonds were priced at 9.80 per cent. Industry sources said companiessuch as Indian Hotels, Tata Motors and IDFC were in the process ofraising funds by selling rupee-denominated bonds. S&P revised its rating outlook to ‘negative" for 15Indian financial institutions, the top three information technologycompanies in the country, and three more domestic companies. "This will impact foreign borrowings..
As the outlookchanges, the cost of borrowing in the foreign markets will also goup," noted V Balakrishnan, chief financial officer ofInfosys, the second largest software exporter in the country. The view was echoed by a senior executive of a Mumbai-basedmanufacturing company. "Only those companies that enjoy asuperior rating than the Indian sovereign will find some acceptanceamong international investors. But the number of such companies islow.
Hence, many institutions will now look at the Indian bondmarket to meet their funding needs," the official said. However, a section of the market feels heavy government borrowingmay crowd out private fund-raising programmes in the current tightliquidity environment. "There will definitely be a rush butthe Indian corporate bond market does not have too much depth. Thebond issuances of Tata Steel and Hindalco, coupled with thegovernment's robust borrowing plan, may make the market dense.Hence, those who hit the market early will enjoy a betterrate," said a banker. Additional reporting by Shivani Shinde.
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