Overseas bond issuance bounces back after 2 years on rising demand from foreign investors

overseas-bonds

Fundraising by Indian corporates and banks through overseas bonds has surged sharply in 2024 after a gap of two years on rising demand from foreign investors due to the onset of the rate-cut cycle globally, experts have said.

“Demand for high-yield credits is rising globally as global rate cut cycle is on-setting going into calendar year 2025,” a treasury dealer with a foreign bank said on condition of anonymity.

According to the Prime database, Indian corporates and banks have raised Rs 68,516 crore through overseas bonds, so far, this year, much higher than Rs 29,107 crore in 2023. The issuance is highest since 2022 when it was around Rs 1.06 lakh crore.

Earlier this year, HDFC Bank raised $750 million through two overseas bonds. The bank raised $300 million for a period of three years and $450 million for a five-year tenure.

Most companies looking to diversify their borrowing and in search of better rates are also tapping overseas bond markets, experts said. A revival of foreign investment is also helping banks and corporates.

In 2022 and 2023, most Indian issuers were constrained from tapping the overseas market due to rising interest rates as central banks tried to contain inflation, they said.

Geopolitical tensions and related issues dragged issuances in 2022 to a three-year low without much recovery in 2023.

Issuances in 2022 were the lowest in the last 10 years, according to the Prime database.

From May 2022 to February 2023, the Reserve Bank of India (RBI) raised interest rates by 250 basis points (bps) to fight high inflation. Since April 2023, it has held the repo rate steady at 6.5 percent. Last week, was the eleventh time that the rate was left unchanged.

Experts said the demand from foreign investors — for corporate bonds and government securities — remains high in India as well.

Clearing Corporation of India (CCIL) data shows a steady rise in investment by foreign investors in government securities under Fully Accessible Route (FAR) throughout the year.

Investments moderated following the depreciation of the rupee, rise in US treasury yields and equity outflows.

FPI investment in government securities under FAR stood at Rs 2.53 lakh crore on December 10, compared to Rs 1.20 lakh crore on December 8, 2023.

Bond market dealers are of the view that issuance of overseas bonds will likely go up if the interest rates in India remain high for too long.