Global bonds of Indian companies may reach $25 billion: S&P
Indian companies have the potential to further expand cross-border issuances volumes
New Delhi: The size of global bonds issued by Indian companies could almost double to USD 25 billion within a few years, with a majority of them likely to take place after 2015, stated global credit rating firm S&P "Cross-border debt issuances by Indian companies could nearly double to test the USD 25 billion mark over the next few years, from USD 14 billion in 2014. "However, the bulk of the increase is likely only after 2015," Standard & Poor's said.
Indian companies have the need and potential to further expand cross-border issuances volumes, it added. "That said, another record year for foreign debt issuance will hinge predominantly on the Indian government maintaining its recent reforms momentum, and investor sentiment remaining positive for India," said Michael Seewald, S&P credit analyst. It also said that Indian firms' capital expenditures would not pick up substantially before 2016 as companies involved in materials and utilities, together accounting for a large share of aggregate capital expenditure, have only limited headroom for increasing externally funded investments.
These sectors are also highly exposed to upcoming regulatory changes, it added. "Finally, we believe that even if robust reforms turn intolaw starting April, the complexity of the reforms will likely delay their implementation. "We believe the commodities industries - particularly oil and gas and metals and mining - are most likely to drive international bond issuances in India," said Seewald. Both these industries are capital intensive and benefit from a natural hedge against exchange-rate risk.
Further, S&P has said that recent fall in commodity prices could force companies in these sectors to slash costs to preserve their credit profiles. "These measures would likely include lowering capital expenditures and reining in acquisitions, reducing the need for fresh funding. As such, refinancing needs will therefore likely drive issuance," the report said.