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Home›Export-Import Bank›Investors Heat Up in Indian Credit as Covid Risks Mitigate

Investors Heat Up in Indian Credit as Covid Risks Mitigate

By Pia
July 2, 2021
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MUMBAI: Indian companies brace for foreign finance market after three-month lull as uncertainties after second wave of Covid 19 pandemic have dissipated and foreign investors are keen to put their money into Indian credit to balance their heavy portfolios in China.

The spread of Indian dollar bonds against their benchmark US Treasuries has widened over the past three months as global investors are wary of the impact of the second wave of Covid in India, which is causing a widespread destruction of lives and livelihoods.

For example, the yield of the cement plant of the Aditya Birla group

which valued its first $ 400 million 10-year bond at 167.5 basis points above the US Treasury benchmark in February, has climbed 195 basis points above the index benchmark and has now returned to a spread of 171 basis points. One basis point is equal to 0.01 percentage point.

Sovereign-backed Exim Bank, which launched the fundraiser in 2021 with a 10-year $ 1 billion issue at 145 basis points above the US Treasury, saw its spread increase to 180 basis points above the Treasury before falling to 165 basis points currently.

Yields on shorter five-year bonds for some riskier credits have even contracted in the secondary market relative to its issue price, indicating strong demand for Indian paper among global investors.

For example, Clean Renewable Power, a subsidiary of the Hero Group, raised $ 363 million by selling six-year bonds to investors at a yield of 4.25% in March, which is now trading at 3.88 %. Likewise, renewable energy firm Greenko raised $ 940 million by selling a five-year bond to 3.85% investors in late March. This bond offer, which is the largest and cheapest offer for lower grade paper, is now trading even lower with a yield of 3.25%. This is despite the fact that the five-year US Treasury bill rose 60 basis points and the 10-year note is up 80 basis points since January.

Bankers say all indications are for a resumption of issuance from India.

“International markets remain very buoyant and Indian loans are very well sought after by international investors. The strong performance of Indian issues in the first half of 2021 sets the stage very well for more issuance in the second half, ”said Hardik Dalal, Head of Loans and Bonds at Barclays Bank India.

Indian companies have raised more than $ 14 billion in the first six months of 2021, surpassing the $ 14 billion raised during the 2020 pandemic. Bankers believe India’s dollar bond issuance will exceed the $ 26.5 billion raised in 2019, a record.

The strong demand for environmental social governance (ESG) claim bonds, the proceeds of which are used for environmentally friendly or social causes and the diversification of investors away from China, which concentrates more than 60% emerging market issues will push investors towards Indian paper.

“Offshore bond spreads behaved much more orderly in 2021, compared to our experience during the first wave in 2020. The massive supply in the USD bond market during the January-March period has potentially paved the way for volumes surpassing the records set in 2019, ”said Chetan Joshi, Head of Debt Financing, HSBC India.

The bankers said companies in the power, renewables and automotive industries were waiting for the right opportunity to raise funds overseas.

The only risk is a third wave of the much-talked-about pandemic which, if as severe as the second, could disrupt livelihoods and delay economic recovery.

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