Overseas bonds are back in flavour in 2024 on stepped up demand from foreign investors

Bonds

Appetite for overseas bonds is back after a two-year gap with demand from foreign investors picking up, experts said.

According to Prime Database, fundraising through overseas bonds by Indian companies in 2024 till June has surpassed the overall issuances in 2023. So far this year, companies have raised Rs 32,619 crore, blowing past the  Rs 31,218 crore raised in all of calendar 2023. In 2022, companies had raised Rs 45,237 crore.

“This renewed activity is driven by multiple factors: India’s robust economic performance, reducing inflationary trends, fiscal consolidation and recent credit rating upgrades. Improved global liquidity conditions, lower hedging costs and strong investor preference for high-yield transactions have further bolstered this trend,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap.

“Most corporates are raising funds from the overseas bond market due to better rates and can raise funds with longer tenures. In 2024, levels are coming off a bit and corporates think that rates are toppish,” said Diptangshu Chatterjee, Head Treasury and Banking in Dalmia Bharat.

Chatterjee led the HCLTech USD bond issuance at the record low cost (1.47 percent) in India's corporate history.

Earlier this year, India's largest private sector lender HDFC Bank raised $750 million through two overseas bond issuances. It raised $300 million through bonds for a period of three years and $450 million for a five-year tenure.

Also read: Global banks are the biggest bulls in India’s bond market

In May, 2024, Muthoot Finance raised $650 million through dollar-denominated bonds maturing in three years and nine months at 7.125 percent coupon rate.

In 2022 and 2023, experts said most Indian issuers were constrained from tapping the overseas market due to rising interest rates as central banks across the world sought to contain inflation, even as geopolitical tensions rose.

In fact, geopolitical tensions and allied 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 Prime database.

From May 2022 to February 2023, the Reserve Bank of India (RBI) raised interest rates by 250 basis points (bps) to fight a high rate of inflation. Since April 2023, the central bank has kept interest rates unchanged after seeing a moderation in the rise in prices. The RBI is waiting for inflation to reach its target level of 4 percent, and sustain at that level.

Similarly, most other central banks after increasing interest rates for over a year had stopped when there was a sign of easing inflation. A few, including the US Federal Reserve, have even hinted at a rate cut.

Also read: India to see more bond buyers move onshore as index weight rises

A treasury dealer with a foreign bank who asked not to be identified said the issuance of overseas bonds by Indian firms has also increased because foreign investors who don't want to take exposure to India locally due to operational reasons are buying overseas bonds.

Back home, apart from corporate bonds, foreign investors are also lapping up bonds issued by the government. This investment trend has mostly increased after JPMorgan added Indian government securities to its emerging market bond index.

On a monthly basis, foreign portfolio investment in Indian government securities via the FAR or fully accessible route rose by around Rs 10,000 crore to Rs 12,000 crore between October 2023 and January this year.

Srinivasan further said the increased overseas bond issuances are unlikely to negatively impact the domestic corporate bond market. Local AAA-rated issuers continue to balance their borrowing between the onshore and offshore markets.