Bloomberg News

New Issues Drop 75% to Six-Year Low on Rupee Rates: India Credit

February 14, 2013

Rupee debt sales slumped 75 percent this year as LIC Housing Finance Ltd. and Rural Electrification Ltd. delay issuance saying borrowing costs are too high even after the central bank cut rates for the first time since April.

Indian companies raised 73 billion rupees ($1.4 billion) selling bonds, the slowest start in six years, data compiled by Bloomberg show. The average five-year yield on AAA corporate notes fell 24 basis points this year to 8.88 percent, according to indicative levels compiled by Bloomberg. Similar costs fell 12 points in China 4.85 percent. The Reserve Bank of India cut its benchmark rate to 7.75 percent from 8 percent on Jan. 29

“A significant downward shift in the rate curve is imperative before we can step up our fundraising,” V.K. Sharma, Mumbai-based chief executive at LIC Housing Finance Ltd., India’s fifth-biggest borrower this year, said in a telephone interview yesterday. “It’s difficult to sustain borrowing even after the recent monetary easing.”

Credit Suisse Group AG and Barclays Plc predict the RBI will cut the repurchase rate by at least another 50 basis points this year to boost the slowest economic growth in a decade. Axis Bank Ltd., India’s biggest underwriter, and SBI Capital Markets Ltd. say reductions may help debt sales surpass the record 2.4 trillion rupees in 2012. Chinese issuers raised 4.18 trillion yuan last year ($671 billion), data compiled by Bloomberg show.

‘Further Drop’

“Issuers are expecting a further drop in borrowing costs before they go all aggressive with debt sales,” Ashish Sable, vice president at SBI Capital Markets, said in a telephone interview from Mumbai yesterday. “A noteworthy reduction in costs hasn’t happened.”

The RBI will lower the repurchase rate to 7.5 percent this quarter and to 7 percent by year-end, according to the median forecast of 26 economists in a Bloomberg News survey. The central bank next reviews monetary policy on March 19.

Governor Duvvuri Subbarao on Jan. 29 cut the central bank’s inflation estimate for March to 6.8 percent from 7.5 percent and signaled there’s room, “albeit limited,” to ease policy further to boost growth. Asia’s third-largest economy may expand 5 percent in the fiscal year ending March, the government said Feb. 7, the slowest pace since 2003.

India’s benchmark wholesale price index rose 6.62 percent in January from a year earlier, the least since November 2009, the government said in a statement in New Delhi today. The median of 34 estimates in a Bloomberg News survey was 6.98 percent.

LIC Housing

The highest borrowing costs among Asia’s major economies are prompting borrowers to sell shares locally and tap overseas bond markets for funds.

LIC Housing raised 6.3 billion rupees selling shares last month, more than double the 3 billion rupees of bonds India’s second-largest non-bank mortgage lender sold this year, according to data compiled by Bloomberg. The Mumbai-based company sold 139.25 billion rupees of debt last year. Issuers led by Reliance Industries Ltd., the nation’s biggest company by market value, sold $2.44 billion of overseas notes in January, the most in 21 months, the data show.

Average dollar yields for Indian issuers fell to an all- time low of 3.95 percent on Jan. 10 and are 23 basis points lower this year at 4.03 percent, HSBC Holdings Plc indexes show.

The yield on the benchmark 10-year government debt has declined 24 basis points, or 0.24 percentage point this year, narrowing the difference over similar-maturity U.S. Treasuries to 580 points yesterday, data compiled by Bloomberg show. The premium is the lowest since August 2011.

Rural Electrification

The yield on the 8.15 percent note due June 2022 fell four baiss points to 7.81 percent as of 12:21 p.m. in Mumbai, while the rupee weakened 0.1 percent to 53.8450 per dollar. Rupee- denominated sovereign bonds returned 11.3 percent in the past year, the most among Asia’s 10 biggest local-currency debt markets followed by 10.2 percent of Philippines tracked by HSBC.

Rural Electrification is delaying ramping up bond sales as it expects borrowing costs to fall further as Governor Subbarao lowers interest rates to spur growth. India’s third-biggest lender by market value to electricity projects sold 154.9 billion rupees of bonds last year and plans to boost issuance by 15 percent in 2013, according to Ajeet Agarwal, director of finance.

The company based in New Delhi sold 15 billion rupees of bonds this year compared with 18 billion rupees in the same period a year earlier, according to data compiled by Bloomberg.

‘Not Encouraged’

“Even after the cut in the repurchase rate last month, companies like ours seeking large amounts are not encouraged yet with the present level of borrowing costs,” Agarwal, said in a telephone interview. “Rates should drop significantly to reflect the macro-economic situation, and that will prompt a surge in fundraising all across.”

The cost of insuring State Bank of India debt, considered a proxy for the sovereign, for five years against non-payment slid 26 basis points this year to 200 yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

“Companies are looking to jumpstart their business activities, and one certain way to do that is to lower interest costs,” Parthasarathi Mukherjee, treasurer at Axis Bank, India’s biggest debt arranger in 2012, said in a telephone interview yesterday. “Softer rates would boost demand from investors as well.”

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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