Milind Patel, managing director, IL&FS Financial Services is gung-ho on the dim-sum bond market as it offers a great window to access mid-term capital for the Indian corporate world.
In an interview to CNBC-TV18, he claimed that IL&FS Financial Services was the first non-bank Indian entity from the infrastructure sector to enter the dim-sum bond market after European and US companies.
Patel says that there is a great appetite for Indian paper and the market offers diversification in strategies of resources for Indian companies, especially in the infrastructure sector who are primarily being funded by the Indian banking system.
Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: Your sister company actually raises money through that route, what is the appetite looking like? Do you think there will be more companies that would be looking to raise money through this route?
A: Dim-sum bonds is an emerging market where over the last two-to-three years there have been a lot of international companies who have raised medium-term capital up to three years from the market.
After companies from the US and Europe, we are the first non-bank corporate entity from India in the infrastructure sector planning to raise capital via this route.
There is a great appetite out there for Indian paper and it originates largely from Hong Kong, Singapore, the European markets and across institutional as well as private banking segments.
This offers diversification in strategies of resources for Indian companies, especially in the infrastructure sector who are primarily being funded by the Indian banking system.
So it is in line with our larger national and global objectives and gives is good opportunity to diversify resources.
In addition, with increasing bilateral transactions likely to take place in the future across various sectors between India, and China emerging as one of the largest exporters of capital, this market is a great window to access capital for the Indian corporate world.
Q: Isn't there a Budget cap of USD 1 billion on these?
A: No, I don’t think there is any particular cap from the Budget. The good thing about this market is that its great in the mid-sized transaction level of say USD 100-200 million, unlike the dollar market, where you have a minimum ticket size of USD 0.5 billion.
So, especially for mid-market companies and infrastructure companies, this would definitely be a good source of capital.
Q: What is the yield advantage in this market? Is it that you will be able to raise for that USD 100-million category in any advantageous manner, in terms of yields swap rates?
A: Let me just backtrack a bit and explain how the market functions. Investors in the dim sum market have a play on two aspects. One is the coupon and the second component is the appreciation in the Renminbi, which is eagerly expected.
So when we looked at it two years ago, the coupons were much lower because there was a great appreciation expected on the Renminbi.
So, you had coupons which were in the region of say 3-3.5%.But over the last few months, the growth in China is slowing down. The capital appreciation expectation is also slowing down.
So, as a result, the coupon goes up. But then that gets automatically compensated on the swap side, where the swap differentials move in your favour.
So if you sum up the coupon and the swap, then you have a net weight which is fairly attractive from the perspective of Indian issuers.
ILandFS stock price
On November 27, 2015, ILandFS Investment Managers closed at Rs 18.85, up Rs 0.15, or 0.80 percent. The 52-week high of the share was Rs 23.45 and the 52-week low was Rs 16.10.
The company's trailing 12-month (TTM) EPS was at Rs 1.68 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 11.22. The latest book value of the company is Rs 3.65 per share. At current value, the price-to-book value of the company is 5.16.
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