US dollar bond market: Indian cos’ bond with dollar gets stronger; may stay so in new year
Industry experts say that India’s dollar bond issuance was around $12 billion in 2024 against $5 billion last year and it is expected to see continued momentum in 2025.
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Although the rise in issuance is driven by improved investor sentiment and tighter spreads, it is lower than the $22 billion issuances in 2021, with treasury yields refusing to be tamed despite two rate reductions by the Fed. Next year is expected to see sustained interest, with issuances remaining on a par with this year.
“While there was a revival, we are still some distance away from the record of more than $22 billion raised in 2021, as high treasury yields continue to keep large corporate borrowers on the sidelines, said Prathamesh S Sahasrabudhe managing director and head, capital markets, India and South Asia, Standard Chartered Bank.”
“The rebound in the dollar bond market was led by large issuances from banks like SBI and HDFC Bank, private sector corporates like Vedanta and Biocon and multiple issuances from the NBFC sector,” he said. “SBI set a record with the tightest spread ever achieved for an Indian financial institution-at treasury +82 basis points-on its $500 million bond in November 2024.”
Also, Vedanta’s successful bond restructuring led to a 300-basis-point yield reduction within four months.
Hedging Costs Included
Indian issuers primarily focus on the landed cost in INR rather than the spread when raising capital offshore. This landed cost is influenced by US interest rates and the hedge cost, which reflects the interest rate differential between the two economies.
“As long as the cost remains attractive and the global interest rate environment stays benign, we can expect Indian corporates, especially NBFCs and infrastructure players, to tap international markets,” he added.
“The dollar bond market, from an Indian issuer’s perspective, is an alternate currency market and issuers evaluate the offshore rates, and when they find them viable, they raise capital internationally, especially since there is no significant domestic liquidity dearth in India, said Sameer Gupta, MD & head India and SE Asia DCM at Deutsche Bank. “The momentum of these issuance is likely to continue unless we see a significant shift in the global interest rate environment.”
The Federal Reserve’s decision to pause rate hikes in December last year shifted the global interest rate regime. Rates began declining in early 2024, encouraging issuers to tap the market.
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While rupee liquidity is strong domestically, offshore markets remain appealing for certain financing needs due to competitive rates. PSEs like REC, PFC, and banks such as SBI continue to raise funds offshore, driven by their growing lending books.
Corporates are leveraging offshore markets for refinancing, particularly for acquisitions or where spreads have compressed, as seen in cases like Vedanta and Biocon. Also, companies with improved credit profiles, such as Vedanta, have refinanced offshore debts at lower rates.
Outlook
The market is expected to sustain similar levels of issuance, barring shocks like unexpected rate hikes or inflation spikes in the US.
The trend is likely to continue in 2025, contingent on sovereign-linked corporates and larger borrowers returning to the market, alongside easing US treasury rates. For now, issuers are leveraging favourable market conditions to tap global capital, with fund managers noting strong appetite from domestic and international investors for Indian credits.
Looking ahead, 2025 could see further growth if large private sector and sovereign-linked corporates return to the market, which would be aided by any potential easing in US treasury rates.
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