Moody’s India upgrade flashes green light for offshore corporate bonds


Mumbai/Hong Kong: Indian companies are set to benefit from their government’s credit-rating upgrade on Friday, with the move expected to boost demand for offshore bonds, and spur sales.

Premiums on dollar-denominated Indian corporate bonds over US Treasuries fell by around 5 basis points after Moody’s Investors Service raised India’s sovereign rating one notch to the second-lowest investment grade. Upgrades followed for local banks including State Bank of India.

“The upgrade should help issuers from India as they are no longer on the cusp of investment grade,” said Avinash Thakur, managing director and head of Asia debt origination at Barclays Plc in Hong Kong. “It makes a big difference to investors, and we will see more dollar bond supply from India, like more public sector undertakings would be printing.”

Indian companies and banks have sold $12.5 billion of foreign-currency bonds so far this year, some 54% more than last year, with a little over a quarter of the 2017 total coming from the banks, according to data compiled by Bloomberg.

Spreads on dollar bonds from the country were around 213 basis points on Thursday, outperforming those from Asia excluding Japan, which were at 228 basis points, according to JPMorgan Chase & Co. index data.

‘Big boost’

“There will be some drop in borrowing costs on the dollar debt of Indian issuers by 20-25 basis points across the board. The Moody’s move is a big boost to all the Indian markets,” said A.S. Thiyaga Rajan, a senior managing director at Aquarius Investment Advisors in Singapore.

After a good run for offshore Indian debt, and with some concerns about a slowdown in growth and mixed prospects for bond-spurring central bank interest-rate cuts, not everybody anticipates further rallies.

“While the timing of the upgrade came as a positive surprise and has resulted in some spread tightening, we view valuations of Indian credit as already quite expensive and would not chase on the back of the upgrade,” said Nicholas Yap, a credit desk analyst in Hong Kong at Nomura International (HK) Ltd.

India remains a small player in the swelling Asian dollar-bond market, which has become increasingly dominated by China, and borrowers typically turn to bank lending or sell debt at onshore. Rajan at Aquarius didn’t anticipate an outright surge in offshore sales.

“We expect some supply from India the next couple of months though the overall volume will still not be too big compared to the Chinese issues,” said Chao Li, head of Asia bond syndicate at Standard Chartered Plc.