Syndicated loan borrowings abroad fall as companies tap bonds for expansion
MUMBAI: India’s syndicated loan borrowing in overseas markets has collapsed in the January-March quarter as Indian companies have taken the bond route to fund their expansions, and investments are yet to pick up. Loans denominated in US dollar, Japanese yen or euro dropped 75 per cent year-on-year.
India G3 syndicated loans (in three currencies) dropped to $2.3 billion against $9 billion during the three-month period last year, according to Dealogic, an international data providing company.
“Corporates have found it cheaper to raise funds by selling domestic or offshore bonds rather than going through syndicated loans,” said Rakesh Garg, managing director and head of global finances, Barclays India. “The fall in US treasury yields, too, has worked in their favour, reducing the borrowing costs.”
“Moreover, companies can borrow long-term (10-years) via bonds, which won’t be the case for syndicated loans,” he said.
Asyndicated loan is a large loan in which a group of banks provide funds to a borrower with one lead lender or arranger at its helm. It is the opposite of a bilateral loan. US treasury 30-year bond yields dropped a record low of 2.39 per cent as prices moved up.
India’s syndicated loan volume, which included both domestic and offshore syndications, was at $7 billion in the first quarter this calendar year, the lowest since 2007 when it had reached $4.8 billion.
“First quarter of last year saw a number of refinancing deals, leading to increased volumes of syndicated loans,” said Manmohan Singh, managing director and head of debt capital market, India and Southeast Asia, RBS. This year, the start has been slow, similar to the trend in Asian markets.
“In capital markets, Indian companies found an attractive spread for raising capital by selling offshore bonds. Besides, we saw new issuers approaching the offshore markets.” The offshore bond markets, where Indian companies raise funds by selling offshore bonds, have seen a pick-up. During January-March, India International debt capital market volumes were up 15 per cent to $3.7 billion, from $3.2 billion in the corresponding quarter of the previous year, according to Dealogic.
Between January and March, BBB+ rated Reliance IndustriesBSE 1.05 % raised $1 billion by selling offshore bonds at 4.125 per cent with 10-year maturity. Final pricing was derived after adding 240 basis points over and above the 10-year US treasury bond yield.
Initially, investment bankers were expecting a 265 bps spread. The scene was no different when BB-rated DIAL sold bonds for $289 million with 7-year maturity at 6.125 per cent. It was priced after adding 452 bps above the US treasury bond yield. “From an issuer perspective, bond yields have been attractive in relation to loan yields,” said Ananth Narayan, regional head of financial markets, South Asia at Standard Chartered Bank.
