Downgrade risk receding, trims US dollar costs for Indian companies

Downgrade risk receding, trims US dollar costs for Indian companies

Mumbai: Dollar borrowing costs for Indian companies fell to an eight-month low as the nation’s improving finances reduced the prospect of a sovereign-ratings downgrade.
Indian Railway Finance Corp. raised $500 million selling 3.917% five-year notes at a spread of 245 basis points on 19 February, data compiled by Bloomberg show. The state-owned rail network’s finance unit last borrowed dollars in October 2012 at 280 basis points. Yield premiums for US currency debt in India averaged 307.3 basis points on 25 February, the least since June 5, according to JPMorgan Chase & Co. indexes. That compares with 358.5 for companies in China.
India’s government last week pledged the budget deficit will narrow to 4.1% of gross domestic product by 31 March 2015, and said it would undershoot its original target for this fiscal year of 4.8%. Rajiv Datt, Indian Railway Finance’s managing director, sees a robust sales pipeline and strong demand from investors impressed by progress in repairing the finances of Asia’s third-largest economy.
“Expectations of political stability are creating positive sentiment in global markets, helping Indian companies to borrow at a lower cost,” said Prabal Banerjee, Essar Group’s Mumbai- based president of international finance. “Companies of high credit quality will see favorable interest rates this year.”
Offshore pipeline
International bond sales soared to a record in 2013 and overseas syndicated loans jumped 40%. Bank of Baroda and Bharti Airtel Ltd. raised $1.1 billion in dollar- and euro- denominated notes last month while ONGC Videsh Ltd. leads an offshore loan pipeline of at least $5.2 billion this quarter, Bloomberg-compiled data show.
“State Bank of India has approached its relationship banks for a $300 million three-year term loan,” two people familiar with the matter said last week, while Vedanta Resources Plc is offering a margin of 357 basis points more than the London interbank offered rate on its $500 million four-year facility currently being marketed to banks. With fees, that equates to interest of about 4% compared with a weighted average fixed-coupon of 9.37% on Vedanta’s rupee-denominated debt.

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