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CFO Thanks Obama as Power Grid Debuts Dollar Bonds: India Credit

November 15, 2012

CFO Thanks Obama as Power Grid Debuts Dollar Bonds

A man works on a power transmission cable in Tezpur, India. Photographer: Adeel Halim/Bloomberg

The treasurer of Power Grid Corp. of India Ltd., selling dollar bonds for the first time, says U.S. President Barack Obama’s re-election will sustain a rally that cut borrowing costs to a 17-month low.

The country’s largest transmission provider expects to price at about 250 basis points more than similar-maturity Treasuries, or 40 basis points less than Bharat Petroleum Corp. (BPCL) paid in the latest Indian offering. Average premiums for the nation’s dollar debt tightened 48 basis points to 372 this quarter and reached the lowest since May 2011, HSBC Holdings Plc data show. Global corporate spreads fell 14 basis points to 158, according to Bank of America Merrill Lynch indexes.

“We will be able to do much better than the last issue as there is an assurance that quantitative easing will continue,” Finance Director R.T. Agarwal, 56, said in a telephone interview from New Delhi on Nov. 7. “The flow of funds to emerging markets will continue.”

Obama’s win over Mitt Romney helps ensure that Ben S. Bernanke will stay chairman of the Federal Reserve and bolster buying of bonds to stimulate the global economy. Indian company international note sales surged to an all-time high of $5.13 billion in the third quarter, as monetary easing drove flows into emerging-market debt funds toward a record this year.

Worst Blackout

The company is raising money as it plans 1 trillion rupees ($18.2 billion) of spending to upgrade its network after India’s power grid collapsed in July, the world’s worst blackout. The electricity transmitter, based on Gurgaon, near the capital New Delhi, expects to sell the 10-year notes by Dec. 15, Agarwal said. It hired Standard Chartered Plc, Barclays Plc and Royal Bank of Scotland Group Plc to arrange the sale, a person familiar with the matter said Nov 5.

“Power Grid’s issue should be received well among investors and can make the road clear for other issuers,” Walter Rossini, who manages about $200 million in Indian assets at Aletti Gestielle SGR SpA in Milan, said in a telephone interview on Nov. 7. “The spread narrowing shows the positivity of investors for paper of Indian companies.”

Money flowing into emerging-market debt funds increased more than $600 million in the week ended Nov. 7, on track for a record year, according to Cambridge, Massachusetts-based research firm EPFR Global. The Fed announced a third round of quantitative easing on Sept. 13, while European Central Bank President Mario Draghi said last week that the bank stands ready to start buying bonds.

Bharat Petroleum

Bharat Petroleum’s $500 million offering brought sales by Indian companies to $9.39 billion this year, the most in data compiled by Bloomberg going back to 1999.

The company sold its first dollar notes at a coupon of 4.625 percent. The securities traded at a premium of 294 basis points, or 2.94 percentage points, more than similar-maturity Treasuries today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

State Bank of India (SBIN) and Export-Import Bank of India reopened the overseas bond market for the country’s companies, marketing a combined $1.75 billion of securities in late July, according to data compiled by Bloomberg. Companies have issued another $1.74 billion since Sept. 30.

Diwali Festival

Elsewhere in India’s markets, yields on the government’s benchmark 8.15 percent bond fell three basis points to 8.19 percent as of 11:27 a.m. in Mumbai, the biggest decline since Sept. 5, according to the central bank’s trading system. The country’s markets were closed Nov. 13 and yesterday for Diwali, the festival of lights and the start of the Hindu new year.

The yield spread between 10-year Indian and U.S. sovereign debt fell one basis point from a two-month high to 660 basis points today, the data show.

Rupee-denominated bonds returned 8.48 percent this year, the second-best performance among 10 Asian markets after Indonesia’s 11.17 percent, according to indexes compiled by HSBC. The rupee weakened 0.1 percent to 54.9450 per dollar Nov. 12, data compiled by Bloomberg show.

Credit-default swaps to insure against non-payment by seven Indian companies declined 167 basis points this year to 294 in New York Nov. 13, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements.

Market Revives

India Infrastructure Finance Co., a state-owned transport lender, plans to raise 40 billion rupees selling 25-year and 30- year bonds this month, Chairman S.K. Goel said in a phone interview from New Delhi Nov. 1. The company plans to raise as much as $2 billion from overseas debt markets as early as February, Goel said.

Tata Power Co., India’s largest private utility, is preparing an offering of 10-year rupee-denominated notes, a person familiar with the matter said Oct. 31, asking not to be identified because the terms aren’t set.

“Dollar bond issuance in markets like India revived after central banks across the world announced stimulus to boost their economies,” said Hemant Dharnidharka, head of credit research at SJS Markets Ltd. in Bangalore. “The stimulus created demand for investments, while supply of strong paper was amiss, causing spreads to shrink in a very short period.”

Average dollar borrowing costs for Indian companies fell to 4.28 percent Nov. 12, the lowest since October 2010, as monetary authorities including the People’s Bank of China cut benchmark interest rates, while the Fed, the ECB, the Bank of England and the Bank of Japan (8301) expanded asset-purchase programs.

“Investors are looking at the emerging-market curve positively after the stimulus, and Indian paper is always popular,” said Raj Kothari, a fixed-income trader in London at Sun Global Investment Ltd. It invested in the Bharat Petroleum offering and will consider buying Power Grid notes, he said. “We will enjoy the rally in bond markets and build new positions at the start of the New Year.”

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net

To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Shelley Smith at ssmith118@bloomberg.net


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